Dollar Lower to Start North American Session

The US dollar is mostly lower as the North American session is set to begin.  The holiday in many centers, especially in Europe, has limited activity, and a few orders seemed to drive prices., which remain within the recent ranges. 

The Japanese yen is the main exception.  The greenback's gains have been extended into the seventh session, the longest such streak since October.  The dollar neared JPY113.70, its best levels since the FOMC meeting.   However, local press reports denying that there were would a delay in the April 2017 sales tax (barring a Lehman-like event), saw Japanese shares pare earlier gains and sapped the dollar's upside momentum. 

For the seventh session, the dollar has recorded higher lows and higher highs.  The dollar has not fallen through the previous day's lows since March 17.  The pre-weekend low was JPY112.75 and Initial support is seen near JPY113.30. 

The focus in the North American session is on US data.    Today's reports offer insight into growth in Q1 as well as price pressures.  The Atlanta Fed GDPNow tracker will be updated after today's data.  The GDPNow tracker had been cut to 1.4% from recent data, which matches the revised Q4 15 GDP.     The new times series that provides an early look at US merchandise trade will be released in February.  Little change from January's $60.2 bln deficit is expected.  The average monthly deficit in H2 15 was about $61.3 bln.

More important will be the US income and consumption data.  Personal income and consumption are expected to have edged up by 0.1% after 0.5% gains in January.  Given the swings in the data, it is important to recognize that six, 12, and 24-month averages converge at 0.3%.  The January-February average is expected to match this. 

The risk of an April Fed hike, which has been taken out of the market though at one point last week had discounted about a 12% chance, thought to be impacted by the US jobs data on Friday.  However, today's PCE deflator could encourage new speculation in this direction.  The Fed's targets the core PCE deflator at 2.0%.   It stood at 1.7% in January, the highest since 2013.   It was below 1.3% as recently as last August.  The consensus expects a tick up to 1.8%.  

At least six Federal Reserve officials speak in the coming days.  The highlight is Yellen's speech tomorrow before the Economic Club of New York.  Although some observers have emphasized a split in the Federal Reserve, we would not want to exaggerate it.  Yellen is deftly managing the transition to begin the normalization process.  

There were no dissents to the December hike.  There was a single dissent for another hike at the meeting earlier this month.   Not only does this appear fairly consensual for the Fed, but it also stands in stark contrast with the BOJ (5-4 vote to adopt negative rates) or the acrimonious ECB, where a block has emerged that objects to the measures taken.  

For its part, the euro is trading within the pre-weekend range, which was within the range set on March 24 (~$1.1145-$1.1190).  The intraday technicals warn of a push toward the lows at the start of the North American session.   Sterling's firmer tone against the dollar appears to be drawing strength from the crosses.  The euro has broken below the a three-day shelf near GBP0.7880.  Sterling is trading at its best level against the yen in a week. 

The Australian dollar is interesting in that it has traded on both sides of its narrow pre-weekend range.    A close above $0.7535 would be a constructive technical development.  Recall it peaked near $0.7680 on March 18.  On the pullback, it has held the 20-day moving average (~$0.7490).  The Canadian dollar is firm, perhaps helped by the first uptick in oil in three days.  Initial support for the US dollar is seen in the CAD1.3200-CAD1.3220 area.  The upside is blocked by CAD1.3300. 

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