Daily
- The USD has charted a series of lower peaks followed by lower troughs.
- This is a defined downtrend as determined by peak and trough analysis.
- Moreover, the RSI(9) is below 50 and indicative of downside momentum.
- The current candlestick (still to complete) is a short dragonfly doji.
- There was an initial sell-off by bears until the low was reached.
- The bears then lost control and bulls have taken the price back up to the open.
Conclusion
- The USD has declined on the back of:
- Chinese comments about slowing or halting the purchase of US treasuries (it is likely that this is fake news as later confirmed by Chinese officials); and
- The poor inflation numbers coming out of the US.
- In our opinion the real story here is the inflation weakness.
- This has been a constant theme in the FOMC minutes of late.
- Core PPI missed forecast yesterday coming in at -0.1% (0.2%)
- Today will see the release of CPI numbers (and retail numbers).
- A miss here could see another sell-off in the USD.
- In our view the USD will be more sensitive to the CPI numbers because consumption is such a big part of aggregate demand in the US economy.
- It is interesting to note that Bill Dudley, president of the New York Fed, commented that the US economy may overheat on the back of the US tax reforms.
- He even hinted at 4 rate hikes in 2018 as opposed to 3.
- This is a much more hawkish tone for Mr Dudley.
- Nevertheless the inflation numbers will be key in determining Fed policy going forward
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