US DOLLAR FINDS RESISTANCE AHEAD OF TOMORROW’S CPI RELEASE

The surging trend in the US Dollar has started to show some element of resistance after what’s become an aggressively bullish past three weeks. As we traded into mid-April, the US Dollar held a range near long-term support, and that theme lasted even through last month’s US CPI data. This is when inflation printed at one-year highs, evoking a higher degree of probability for that fourth rate hike from the Fed this year. But, no more than a week after that print we got UK inflation numbers for the month of March, and when these printed in a disappointing fashion, rate hike bets around the BoE started to get kicked further-out into the future. This helped to bring a concerted drop to GBP/USD, and that move has lasted all the way into May. A week later, a dovish ECB meeting helped to produce a similar result in the Euro, with the net takeaway being a really strong US Dollar as rate hike or stimulus-exit bets around the ECB were getting priced-out further.

This amounted to as much as a 4.7% gain in the Greenback from the April 18th lows, which tallies a 5.8% move from the February lows. Considering the fact that this is a non-levered currency that we’re looking at, and that’s a very respectable move in a very short period of time. Naturally, the question draws towards continuation potential and whether or not there’s any more juice in this bullish squeeze; or whether a pullback is in order as the currency has quickly become overbought.

US DOLLAR WEEKLY CHART

prepared by James Stanley

APRIL INFLATION NUMBERS ARE ON DECK

Tomorrow brings US inflation numbers for the month of April, and this theme of Dollar-strength will be on full view as market participants attempt to gauge just how hawkish the Fed might be later in the year; and whether or not we’re looking at a total of three or four rate hikes for 2018. Last month’s inflation, while not showing a direct drive of US Dollar strength, was rather strong. Headline CPI came-in at one-year highs of 2.4%, marking the seventh consecutive month of inflation printing at-or-above the Fed’s 2% target.