Dollar Gains Accelerate on Stronger Data
The volatility in the forex markets over the past 24 hours provides traders with a taste of what to expect this week. Many Asian markets were closed for May Day and most Japanese traders are off for Golden Week which suggests that had those traders been at their desks, volatility could have been greater. The euro is under pressure this morning and the dollar has benefitted from the combination of global uncertainties and better than expected U.S. economic data.
Dollar Gains Accelerate on Stronger Data
The acceleration of personal income and consumption in the month of March indicates that the U.S. economy is improving, giving consumers the confidence to spend. Personal spending rose 0.6 percent, the strongest in 5 months while incomes rose 0.3 percent. The PCE deflator rose from 1.8 to 2.0 percent, which reflects growing inflation pressures. If the labor market continues to improve, we could see a further pickup in incomes and spending. Manufacturing Sector ISM also rose from 59.6 to 60.4, which was the fastest pace of growth since 2004. The manufacturing sector continues to fuel the U.S. recovery while the pickup in prices paid signals growing inflationary pressures. The Federal Reserve can’t be cautious forever. With activity in the manufacturing sector accelerating, payrolls growth in excess of 200k on Friday could push the Fed to drop their “extended period” language in June.
Dollar Rally Ends
The US Dollar Index retreated below support at 76, warning of a test of 75. Failure of 75 would offer a target of 74*. Recovery above 76 is unlikely, but would indicate a test of 77.50. In the long term, the primary down-trend is likely to test the 2008 low of 71.50, while breakout above 77.50 would signal that the down-trend has ended.
US Dollar Index
* Target calculation: 75 – ( 76 – 75 ) = 74 Euro The euro respected its lower trend channel, indicating another primary advance with a target of $1.52. Reversal below $1.47 is unlikely, but would warn of a secondary correction.
Euro US Dollar
* Target calculation: 1.50 + ( 1.50 – 1.48 ) = 1.52 Pound Sterling The pound is ranging between $1.60 and $1.66, indicating active management by the two central banks. An ascending triangle, however, at the upper border indicates buying pressure. Breakout above $1.66 would offer a target of $1.74*. Reversal below $1.64 is less likely, but would signal a test of support at $1.60.
Pound Sterling
* Target calculation: 1.66 + ( 1.66 – 1.58 ) = 1.74
Japanese Yen
The dollar is testing support at ¥90. Respect of support indicates a rally to test the upper trend channel. Reversal below ¥90 would indicate a decline to the December 2008 low of ¥87.
Australian Dollar
The Aussie dollar found support between $0.89 and $0.90. Expect an advance with a target of $0.96*. Reversal below $0.89 is unlikely, but would warn of a secondary correction. Australian Dollar US Dollar
* Target calculation: 0.93 + ( 0.93 – 0.90 ) = 0.96
-
Partners
Trading Monitor
