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USD index reached 13-month high on Wednesday
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However, D1 candle hints at possible reversal
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US data disappoints (Philly Fed in particular); Trump and Kudlow on USD
The last few months have witnessed a pretty staggering rally in the US dollar which very few foresaw at the end of the first quarter. On a trade weighted basis the buck has gained almost 9% since March and while employment data remains firm and the Fed seem set to continue on their path of hiking rates, there hasn’t really been any major positive catalysts for the greenback. It appears that these gains could be based really on an unwinding of negative sentiment, which plagued the US dollar at the beginning of the year as fears surrounding the growing twin deficit likely exaggerated. That brings us to today, and in almost the same manner as back in March, is sentiment a little too positive and upbeat, and could this sow the seeds for a reversal lower?
The USD index (USDIDX on xStation) has rallied strongly in recent months without the economic environment becoming far more favourable for the buck. Yesterday saw an inverted hammer just shy of the 97.00 handle. Could the market have moved a bit too far a bit too soon? Source: xStation
The most recent data out from the US this afternoon has come in on the soft side with the Philly Fed read in particular a possible cause of concern. For the current month a print of 11.9 was well below the 21.9 consensus forecast and marks a large drop from the 25.7 seen last time out. In fact the reading was the lowest since November 2016 - when Trump won the US election. As we can see from the chart below this metric rose strongly from the end of 2016, but seems to have stalled in recent months before the latest figures showed an abrupt drop. It is a stretch to read too much into just one indicator but we can observe that previous sharp drops have often continued to fall for some time. The NY empire state equivalent could now be more keenly scrutinised as traders look to see whether today’s read was simply a blip or a warning sign of things to come.
The Philly fed fell sharply in the latest release, which could be a warning of an impending slowdown. The NY empire state equivalent may now be seen to take on a greater significance to see whether it supports or contradicts today’s release. Source: XTB Macrobond
Given that politics has clearly had a significant impact on the US dollar in recent years, it is worthwhile following the latest comments on this. Trump tweeted earlier today on the US dollar while Kudlow, economic advisor to the White House has claimed that a strong dollar is a sign of confidence in the US. Speaking to CNBC, Kudlow said “there’s a lot of unrest around the world. Money is flowing into the USA. That’s terrific.” He added he “just wants a steady dollar” and isn’t trying to “pilot” the US currency. THese remarks were echoed by Trump on twitter where he posted the following message on the social media site.
Trump took to social media to state his pleasure at the strengthening US dollar. Could this mark a high-water mark for the currency? Source: Twitter
