Market News & Analysis
USD - pausing or failing?
Tony Sycamore April 30, 2019 4:55 AM
Frustratingly for FX traders, the U.S. dollar index which recently broke higher and traded at its highest level in 2 years, has failed to capitalise on last week’s break.
The lack of U.S. dollar upside follow through, was firstly the result of the U.S. Q1 GDP report on Friday. On the surface, the headline number of 3.2% growth QoQ was impressive however, it did mask weakness in consumer spending, as well as concerns that unsustainably high exports drove the rise.
This was followed overnight by another soft inflation number. Core PCE, one of the Fed’s preferred measures of inflation printed flat in April, which resulted in the year on year number fall to an 18-month low of 1.6%. At this rate, there is no immediate end in sight to the low inflation conundrum we wrote about last week here: https://www.cityindex.com.au/market-analysis/au-cpi-in-focus/
The U.S. dollars pause is something to keep in mind given recent CFTC data confirmed that the market continues to add to its U.S. dollar long position, mostly against the CHF, EUR and JPY. The market is currently sitting on U.S.$32.6bn of net U.S. dollar longs, the largest since December 2018. For a reminder as to what happened back in December 2018, I have highlighted the almost -2.75% fall in the DXY index on the chart below.
Now that’s not to say we are expecting the same to happen this time around. However, we do see the U.S. dollar, as being delicately balanced ahead of the plethora of Tier 1 U.S. data due for release this week, including ISM manufacturing PMI, FOMC and employment data. Not to mention the ongoing backdrop of U.S. – China trade talks which kick off again today in Beijing.
Providing the DXY index holds on a closing basis above the strong band of horizontal support 97.70/50 then the price action of the past few days is likely to be a “pause” before the uptrend resumes. However, should the DXY break and close below the support zone at 97.70/50, then it is an indication the U.S. dollars breakout has failed again in the short term and a possible trigger for a position unwind such as the one witnessed in December 2018.
Source Tradingview. The figures stated are as of the 30th of April 2019. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
TECH-FX TRADING PTY LTD (ACN 617 797 645) is an Authorised Representative (001255203) of JB Alpha Ltd (ABN 76 131 376 415) which holds an Australian Financial Services Licence (AFSL no. 327075)
Trading foreign exchange, futures and CFDs on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange, futures or CFDs you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss in excess of your deposited funds and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange, futures and CFD trading, and seek advice from an independent financial advisor if you have any doubts. It is important to note that past performance is not a reliable indicator of future performance.
Any advice provided is general advice only. It is important to note that:
- The advice has been prepared without taking into account the client’s objectives, financial situation or needs.
- The client should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation or needs, before following the advice.
- If the advice relates to the acquisition or possible acquisition of a particular financial product, the client should obtain a copy of, and consider, the PDS for that product before making any decision.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.