If Stronger Than Expected Inflation, Consumption, And Jobs Didn't Lift The Greenback, What Will?

The dollar had a rough week.  Despite a series of economic data showing that the US economy was surging by more than expected, the greenback failed to muster any traction and fell against all the major currencies and most emerging market currencies. 

Bank Notes, Dollar, Us Dollars, Usd

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The US 10-year yield tumbled eight basis points last week, the most since last August, and down 15 bp over the past two weeks.  The 30-year yield dropped by a little more than six basis points to extend its retreat for the fourth consecutive week and bring the cumulative decline to about 17 bp (SPTL).  

While I had expected the surge in prices and activity to have lent support to the greenback and US rates, we recognized that much of the good news of the strengthening recovery and divergence with most other countries had been behind the dollar's appreciation in recent weeks.  We recall that the dollar did not rally after the considerably stronger than expected March employment report.  Buy-the-rumor, sell-the-fact activity is not uncommon in the capital markets, but in this context, it is not clear what "rumor" was as nearly every report was stronger than expected.  We recognized that the dollar was at an inflection point and suggested that if it could not rally and rates did not rise, that would lend credence to ideas that large divergence meme and economic acceleration had been discounted.   It is in this context that we analyze the price action.  

Dollar Index:  The Dollar Index fell every day last week for the first time since last June.  It has risen in only two of the last 10 sessions.  The decline is still within the expected retracement objectives of the advance from either the year's low (Jan 6 ~89.20) or the Feb low (~89.70).  The 91.55 that it hovered around in the second half of last week marks the rally's halfway point from the Feb low.  The (50%) retracement objective of the large move is closer to 91.30. The lower Bollinger Band begins the new week near 91.35.  Below there the next targets are in the 90.80-91.10 area.  The 2%+ slide this month is stretching the momentum indicators.  It may take a move above 91.80 to begin stabilizing the tone.  The 200-day moving average is found around 92.25, which is the initial (38.2%) retracement of this month's decline is found (USD). 

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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