The dollar had a whirlwind week and what looked like it would be a protracted retracement turned out to be little more than a very brief reversal in fortunes. The dollar index remains below the highs set earlier in October, but its recovery off the lows last week indicates that dollar bulls were only on the side lines for a short while and have been quick to hop back on board what is fast becoming the most talked about trade across all financial markets. This of course lends itself to the potential vulnerability of a greater correction unless we take out last week’s highs soon. As the Federal Reserve has been clear to communicate, they policy is very much data dependent so keeping a watchful eye on all major US data releases is important.
Oil and European indices are diving this morning as fears over stalling global growth mount, but the equity fallout is more due them catching up a sharp selloff in the US late last Friday. Today is likely to be quiet due to the US celebrating Columbus Day and there is very little in the way of any other economic data due for release. The week gets more interesting as it goes on with CPI figures from across the Eurozone and the UK being a stream of data to watch closely, where the focus is likely to be more on the Eurozone states to see whether deflationary pressures are building. With the price of oil falling as much as it has done in the past few months this has only compounded the deflation issue and we’re highly unlikely to see any surprises to the upside.