Dollar Bulls Face Perilous Start to Second Half as Payrolls LoomBy
Greenback’s 4 month losing streak wipes out post-election gain
Hedge funds bearish on dollar for first time since May 2016
After the worst start to a year for the greenback since 2006, the end of the first half couldn’t come quick enough for the dwindling ranks of dollar bulls. Yet if history is any guide, it could soon get even worse.
A week that’s certain to get off to a slow start with U.S. markets closed Tuesday will culminate with Friday’s jobs report. The release hasn’t been kind to those wagering on greenback strength. The Bloomberg Dollar Spot Index has slumped in the aftermath of nine of the past ten, despite above consensus reports as recently as February, March and May.
“The dollar has not been responding to positive data surprises, but continues to weaken substantially on negative news,” said Michael Cahill, a strategist at Goldman Sachs. “As long as that persists, the risks are skewed to the downside going into every data release.”
The greenback finished the first half on a four month losing streak -- the longest such stretch since 2011 -- wiping out its post-election gain. The currency’s 6.6 percent decline in the six months through June were the worst half for the dollar since the back end of 2010. Unraveling optimism around the Trump administration’s ability to boost fiscal growth has outweighed Fed policy or positive data, according to Alvise Marino, a strategist at Credit Suisse.
“What’s happening on the monetary policy front is not as important,” said Marino. “It’s more about the dollar remaining weighed down by the unwinding of financial expectations.”
The sudden hawkish tilt by global central banks hasn’t helped. The dollar weakened more than 2 percent against the euro, pound and Canadian loonie last week as officials signaled a bias toward tightening monetary policy.
Yet there are reasons for optimism, according to JPMorgan Chase analysts led by John Normand, who recommended staying long the greenback in a June 23 note. A cheap valuation relative to global interest rates, the market underpricing the likelihood of another Fed hike this year, and a still positive growth outlook make for a favorable backdrop to motivate dollar longs in an “overstretched” unwind, the analysts wrote.
Hedge funds and other speculators disagree. They turned bearish on the dollar for the first time since May 2016 last week. Wagers the greenback will decline outnumber bets it’ll strengthen by 30,037 contracts, Commodity Futures Trading Commission data released Friday show.
Here’s what to watch in the week ahead:
|July 3||Markit US Manufacturing PMI|
Fed’s Bullard Speaks in London
|July 5||Factory Orders|
Durable Good Orders
|July 6||MBA Mortgage Applications|
ADP Employment Change
Initial Jobless Claims
Fed’s Williams Speaks in Tasmania
Fed’s Powell Speaks
Fed’s Fischer Speaks
|July 7||Change in Nonfarm Payrolls|
Average Hourly Earnings
— With assistance by Lananh Nguyen