Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

USD Remains On The Ropes. More Weakness To Come?

Published 06/12/2013, 07:27 AM
Updated 03/19/2019, 04:00 AM
EURUSD is well above 1.3300 and AUDUSD may finally be starting a significant correction sequence as we search out explanation for the greenback’s weakness outside of the recent USDJPY correction.

The weakness in the US dollar demands an explanation at this point, with GBPUSD back challenging its 200-day moving average and EURUSD trading well above 1.3300 while USDJPY is considerably off recent lows. So what is driving the greenback weakness outside of the most obvious recent source of strain: the ongoing turmoil in the Japanese Yen and the volatility of the USDJPY pair, where enormous positions have been likely accumulated over the last several months?

This USDJPY correction has driven most of my explanation of the US dollar weakness thus far versus the Euro and the British pound over the sequence of USDJPY consolidations that have taken place in the last couple of weeks. But there are other themes at work here from all appearances and some of the explanation has to be a combination of the worry that the US data looks far too mixed for the Fed to consider a taper any time soon while the ECB can’t join the competitive devaluation game and the UK data is improving sufficiently to keep policy on hold in the UK.

Still, the Euro and pound strength are a bit hard to swallow here, given how rapidly the stronger Euro is likely to become a problem for Europe (and assuming that the entire German Constitutional Court issue blows over again without any worries for the EU – though what the GCC’s deliberations could do is add to the impression that the ECB’s hands are more or less tied and that it will be forced to maintain relatively “tight” policies.) As well, in a structural sense, the UK economy and government are far more challenged than the US by the risks from rising yields. But USD bulls should respect the price action, and barring sharp reversals, the EURUSD rally could carry through to above 1.3400 here if the 61.8% Fibo at 1.3342 is cleared (the 76.4% Fibo comes in at 1.3485)

AUDUSD
The technical argument for a reasonable consolidation in AUDUSD is stronger than ever here as we have momentum divergence in the stochastics and MACD and the pair is already trading above. The last extension . The magnitude of moves could be very large here and one wonders if AUD buying could also help to temper the immediate upside for the Euro more broadly speaking, as EURAUD has been on a moonshot lately and would be in for heavy pressure on Aussie consolidation. We’re already at first resistance for the pair in the 0.9500/25 area, but 0.9750/0.9800 could quickly come into view as the pair has enormous room to move without threatening the overall bearish trend.
<span class=AUD/USD" width="455" height="311" />
Looking ahead
One of the key pivots for whether the USD continues to sell off will be tomorrow’s US Retail Sales data. If the US consumer remains on strike while yields are beginning to rise, the dollar could suffer more weakness in the near term. For now, I suspect that this bout of USD weakness will be measured in terms of another couple of weeks rather than couple of months, but let’s see how things develop from here and we should never fight the market.

Note that the RBNZ is up late today and given the divergence in . Data out of New Zealand remains strong and it’s hard to see why the RBNZ surprises on the hawkish side given the kiwi’s retreat (though it’s been quite strong against the struggling Aussie of late.)

Stay careful out there.

Economic Data Highlights
  • Japan May Domestic CGPI out at +0.1% MoM and +0.6% YoY vs. +0.2%/+0.6% expected, respectively and vs. +0.6% YoY in Apr.
  • Australia Jun. Westpac Consumer Confidence out at 102.2 vs. 97.6 in May
Upcoming Economic Calendar Highlights (all times GMT)
  • UK May Jobless Claims Change (0830)
  • Euro Zone Apr. Industrial Production (0900)
  • UK BoE’s Haldane to Speak (0900)
  • UK BoE’s Fisher to Speak (0900)
  • Sweden Riksbank’s Ingves to Speak (1000)
  • Canada May Teranet/National Bank Home Price Index (1300)
  • US Weekly DoE Crude Oil and Product Inventories (1430)
  • New Zealand RBNZ Cash Rate (2100)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.