Why are stock markets up, but the dollar is in no hurry to fall yet? 

Markets have recently experienced a new local wave of positive sentiment due to the release of U.S. manufacturing inflation data, which confirmed the overall inflation trend in October in both monthly and year-to-date terms.

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Publication of manufacturing inflation data in the US

According to the released data, the PPI has kept the growth rate at 0.2% MoM in October against the forecast of 0.4%. On a year-on-year basis, the index rose by only 8.0% versus expectations of 8.3% and a downwardly revised previous reading of 8.4%.

This data allowed investors to believe again that the deceleration of inflation in October was quite significant, which may put pressure on the Fed, or rather on some of its representatives who vote in the FOMC, who call to continue to raise rates aggressively, and force the regulatorto go if not to suspend rate hikes, then to reduce the growth rate.

  • But while both European and U.S. equity markets were supported by this news, the reaction on the currency market was rather weak, and it might have happened on the wave of actual stabilization of treasury yields before the release of important data on U.S. retail sales and volumes, which will be presented today.
  • As expected, the core retail sales index should be up 0.5% in October versus 0.1% in September. Retail sales should add markedly, to 0.9% from 0.0% a month earlier.
  • If the figures are no worse than the consensus forecast andeven exceed it, we should expect another wave of demand for equities. In that case, Treasury yields might start falling again, which should also put pressure on the dollar. In this case, the ICE dollar index may fall below 106 points and rush to 105 points. In the Forex market, we can expect it to fall considerably against all the currencies without exception.

EURUSD

The pair is trading around the strong resistance level 1.0375. The positive data from U.S. retail sales will support the pair, which might be the reason for the continuation of its growth towards 1.0500.

GBPUSD

The pair is below the level of 1.1900. If the data in the U.S. is good or better than the consensus, the pair will continue to rise to 1.2000 and probably even to 1.2020.

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