Dollar's Next Hurdles

A bull market is like a great trader. The good days are solid and consistent, while the bad days are rare and the losses minimal. We explore the USD below. In response to rising questions about metals from Premium subscribers with regards to our gold and silver trades, a special charts alert has just been posted and sent to members about Ashraf's view on gold, backed by 7 technical arguments. 

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That's how the US dollar and S&P 500 are performing at the moment. A shudder hit both early in US trading, but it came after days of gains and by late trading, the dip was minimized.

On the day, the yen was the top performer while the New Zealand dollar lagged. The Asia-Pacific calendar winds down with a quiet calendar but US CPI and retail sales are out later.

The Fed is helping to keep a constant bid under the dollar. Comments from NY Fed's Dudley didn't get much attention because he was speaking in Mumbai but he provided the clearest evidence yet that the Fed is committed to a June hike. He said the recovery continues apace, which is seemingly innocuous but in the context of the Fed fund futures market pricing in a greater-than 90% chance of a hike, it's a tacit endorsement, particularly from one of the FOMC's more cautious members.

As has been shown over the last 6 months, everything can change and the swiftest means for that is via economic data. As we noted earlier in the week, the quiet calendar helped the US dollar drift. That changes Friday when CPI and retail sales are released at the same time.

At some point the market (and the Fed) will lose patience with the inability of hard data to catch up with soft numbers. The retail sales control group is expected to rise 0.4% and it will need to at least come close or some second thoughts will creep in.

There is likely more leeway on inflation but beyond the June FOMC, Yellen will need to see a sustained upturn if gradual hikes are to continue.

But even if the numbers are soft, it's proven tough to hold US dollar shorts. The slump on last week's non-farm payrolls was wiped out by Monday and given the strength of the USD market, we can't rule out a repeat.