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The Dollar slides on “Sell US” theme

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The Dollar slides on “Sell US” theme

The currency markets now have two polarizing themes which will play out over the course of the coming week.  Stronger than expected employment data seemed to trump all themes on Thursday, as traders focused on jobless claims which drove equity markets lower.  The dollar slid, and precious metals price climbed, which is a correlation that has existed in the past.

The issue seems to be that investors are de-leveraging and taking profits on riskier assets, as the economic data is far from impressive.  True the jobless claims data was the strongest since 2007, but retail sales as reported by Wal-Mart (NYSE:WMT) and Macy’s (NYSE:M) shows that the consumer is far from healthy.  In fact the weak sales and forward guidance from the giant retailer reflects a consumer that is pulling back, and given that the consumer makes up 66% of growth in the US, this could be a problem for the US economy.

It seems hard to believe that the Fed would consider this moderate growth worthy of tightening despite their feeling that tapering of bond purchases is different than tightening.  Granted the Fed will still be easing to the tune of 60-70 billion dollars of bond per month, but until growth starts to show a trend of solid data points, it would seem less than prudent to taper asset purchases.

The Euro tacked on gains on Friday, after rallying on Thursday toward resistance.  A close above 1.3440 would signal an upside breakout which is likely to test the 1.38 level. Support on the currency pair is seen near the 10-day moving average at 1.3315. Momentum surprisingly is flat, with the MACD printing at the zero index level.  The relative strength index (RSI) is hovering near 60 which is on the upper end of the neutral range.

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