Dollar slides despite upbeat US data

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During the Asian session, the key highlight will be the release of Chinese economic data, including GDP figures. Additionally, RBA Bullock is scheduled to participate in a panel discussion. During European trading hours, the focus will shift to the release of UK inflation data. 

Here is what you need to know on Wednesday, October 18:

Another round of upbeat US economic data was released. Retail sales in September rose 0.7%, surpassing the market consensus of 0.3%. August numbers were revised higher. Industrial Production in September increased by 0.3%, exceeding expectations of a flat reading. These positive figures initially boosted the US Dollar, but the impact was short-lived. The DXY closed with minor losses around 106.20.

While US Treasury yields rose sharply, higher yields across the Atlantic offset the impact on the dollar. The 10-year Treasury yield reached 4.86%, while the German benchmark yield climbed 3.50% to 2.88%.

Despite the positive economic news, Wall Street’s reception was mixed. The Dow Jones rose 0.04%, while the Nasdaq declined 0.25%. The earnings season continues on Wednesday, with Tesla, Morgan Stanley, Abbott, Netflix, and other companies reporting their results.

Wells Fargo on US Retail Sales:

Consumers are spending more at bars & restaurants, at auto dealers and online. That’s true on both a monthly basis and on trend over the past year. Consumers are looking for nothing but a good time, and it is hard to resist seeing the upside risk to the outlook.

During the European session, the Japanese Yen (JPY) experienced a sharp spike in response to reports suggesting that the Bank of Japan (BoJ) was likely to revise its inflation forecast for the fiscal years 2023 and 2024. However, the Yen’s momentum was short-lived, and it subsequently pulled back, erasing all its gains. The USD/JPY pair found support around 148.75 and, following upbeat US retail sales data, gained strength, breaking above 149.70. The pair is now approaching the 150.00 level, which is considered a potentially significant area for intervention by the authorities.

The Euro (EUR) strengthened against the Swiss Franc (CHF) and the Pound (GBP), supported by higher Eurozone bond yields. The EUR/USD pair briefly peaked near 1.0600 before pulling back, but it held above the 1.0560 level. Eurozone will release the final readings of September’s Consumer Price Index (CPI) and Construction Output for August.

GBP/USD pair continues to trade within a range of 1.2130 and 1.2225 without a clear direction. Market focus now turns to the UK inflation data scheduled for release on Wednesday.

The Canadian Dollar (CAD) declined across the board after Canada reported a 0.1% decline in the Consumer Price Index (CPI) for September, contrary to expectations of a 0.1% increase. The annual inflation rate slowed from 4% to 3.8%. USD/CAD initially traded above 1.3700 but then pulled back to the 1.3640 area, trimming its gains.

During the Asian session, the New Zealand Dollar (NZD) remained weak, continuing to be impacted by the lower-than-expected New Zealand Q3 inflation reading. The NZD/USD pair trimmed losses during the American session but ultimately finished lower, slightly below 0.5900. The pair is currently trading near the key support area of 0.5860.

On Tuesday, the Australian Dollar (AUD) outperformed, bolstered by the hawkish minutes from the latest Reserve Bank of Australia (RBA) meetings. The AUD/USD pair saw gains for the second consecutive day, but it faced resistance upon reaching the 20-day Simple Moving Average (SMA) at 0.6380 and subsequently retraced to 0.6360. On Wednesday, RBA Governor Bullock will speak at the Australian Financial Security Authority Annual Summit Panel. 

Gold rose despite higher yields but failed to retake levels above $1,930. Silver rebounded sharply at $22.35, rising toward $23.00.