The US dollar is opening with a slight bounce in its step this morning. In the absence of any headlines, it appears more transactional than anything and could be little more than a macro funds pre-US CPI order get put in the execution machine.

US Treasury Secretary Yellen realizing that calling China a currency manipulator is entirely out of touch with reality, is considering removing the Yuan from the watch list of countries that use the currency to gain a competitive advantage on trade.

From an FX trade perspective, I suspect this fits into the “olive branch” but “who cares “category as the People’s Bank of China’s (PBoC) currency liberalization a long term priority, over the short term, they will do as they please to guide the currency as they see fit best to help the economy recover.

More broadly, the Ringgit remains mired amid conflicting signal around stabilizing oil prices vs the expectation of higher US yields (strong US dollar) ahead of this week’s US economic docket. This could point to higher US inflation base effects through the CPI lens and a strong rebounding economy supported by a US consumer spending bonanza via the US retail sales feedback loop.

Because of the new virus waves coming onshore in Thailand, India, and the Philippines, I think regional virus concerns are weighing on local sentiment, primarily via countries with slow vaccination roll-out, which might contribute to some market outflows.

The bond market, rather than the equity market, could be the FX market’s primary focus to start the week. The US dollar has been on the back foot for most of April as more robust than expected US data alongside a still patient Fed has triggered a “risk-on” mood in stocks that has lessened demand for US dollar hedges globally.

Rates could remain the primary near term drive for FX risk and trader could adopt a wait and see ahead of today’s US CPI report with the skew to buy dollar as a hedge for higher inflation” base effects”.

Gold fails to track higher

After a failure to crack any significant topside levels, gold is likely to continue consolidating. Gold is broadly within the recent range, although the market has been trading better on balance.

The pullback in the dollar has likely been a key supportive factor along with lean positioning. Central banks in Europe have been more active in shoring up gold reserves.

Still, the improving US macro backdrop lessens the need for gold and a greater demand for stocks from the investment community as stocks act as competition for gold amid this type of cheery environment.

Anecdotally

As retailers prepare for the shopping summer bonanza to top all shopping bonanzas, anecdotally, I just took a peek at my splurge fund and realized I have already broken the bank after a two-month-long spending frenzy anticipating prices will climb higher this year.

I wonder how many other folks are past peak spending. And given all the talk of an imminent boom in the US economy, a cursory glance under the proverbial hood of a US equity market perched at record highs shows something to all appearances odd. Expressions like the economic revival narrative and grand reopening themes have underperformed.

Eerily quiet out here

It feels like a quiet out here with the CPI today and volatility and volumes near 2021 lows in most asset classes. China stocks continue to drift modestly lower. The reflation trade is wholly in the price and US data doesn’t mean much for policy normalizing until June or July based on the FED’s new “string theory”. As such, my expectations for volatility over the next few months remain muted.

Market analysis from Stephen Innes, Chief Global Market Strategist at Axi