Dollar Breaks Down

The dollar was struggling to sustain upticks when the market anticipated a million new jobs were created in April.  It was sold off in disappointment that only a quarter of the expected jobs materialized.   Despite the inexplicable miss, there is little doubt that the US economy is, in fact, booming.  A large dose of fiscal stimulus, ongoing monetary stimulus, a relatively successful vaccine rollout, the re-opening of the economy, pent-up demand, the wealth effect of rising equities and home prices (and crypto) make for powerful fuel for the world's largest economy.  

20 US dollar banknote on plant

Unsplash

The dollar was struggling to sustain upticks when the market anticipated a million new jobs were created in April.  It was sold off in disappointment that only a quarter of the expected jobs materialized.   Despite the inexplicable miss, there is little doubt that the US economy is, in fact, booming.  A large dose of fiscal stimulus, ongoing monetary stimulus, a relatively successful vaccine rollout, the re-opening of the economy, pent-up demand, the wealth effect of rising equities and home prices (and crypto) make for powerful fuel for the world's largest economy.  

We suggest that is the signal, and the disappointing job report is noise that is truly only worrisome if it is repeated. Nor should the dollar's weakness be understood to portend a weak economy.  On the contrary, the record trade deficit and the 18.51 vehicles sold (seasonally adjusted pace), which was the fifth-best in history, speaks to the relative and absolute strength of the US economy. Of course, no one thinks this kind of economic strength is sustainable, but the employment report does not mark its death knell.  

Here is how we see the technical condition of the different currency pairs.  

Dollar Index:  The Dollar Index was stalling near 91.40 at the end of April and the start of May.  It had been pushed to around 90.85 before the employment report, which saw it drop to around 90.20, below its lower Bollinger Band.  The Dollar Index finished the week below the trendline connecting January (~89.20) and February (~89.70) lows that will start the new week near 90.30.  A convincing break target points to new lows for the year.  The MACD is at the year's lows and still falling.  The Slow Stochastic is moving laterally in its trough in oversold territory. Near mid-week, it had looked like the five-day moving average could cross above the 20-day moving average, but the losses of the last two sessions have seen pulled the shorter average back down (USD, UDN).  

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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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