There were some technical indicators that suggested there was an opportunity for the US dollar to stage a recovery. However, the poor retail sales data and lack of upside surprise on CPI closed that window of opportunity and left the dollar vulnerable to losses to start the new week.
Although June inflation and consumption data are unlikely to have much weight in the Fed’s decision in September, the market’s reaction was to take US rates lower and reduced the perceived chances of another rate hike this year. The implied yield on the December Fed funds futures contract fell to its lowest level in nearly a month (1.225% vs. the current effective rate of 1.16%). The relatively light US economic calendar next week means that there may not be data of sufficient gravitas to negate the sense that the US economy is stuck in a low gear.
The Dollar Index finished the week at its lowest level since last October. The possible double bottom pattern thathad appeared to be forming was dashed as it did not rise above the neckline before breaking down to new lows. Support near 95.00 is mild but is stronger closer to 94.00. The poor close warns of a gap lower opening in Asia on Monday. A move above 96.20 is needed to suggest a bottom is in place. The Dollar Index has been alternating between weekly gains and losses since the beginning of May. The pattern is at risk if it cannot advance next week. Given the light US economic calendar, its fate may be in the hands of ECB President Draghi who holds his customary press conference after the central bank meeting.
The euro made the high for the year just below $1.1490 in the middle of last week. The technical indicators are mixed as the euro has been straddling the $1.1400 level for two weeks in mostly tight ranges. Last years high was setnear $1.1615, and this represents the next target. The 2017 high was a cent higher. There is the talk of leveraged accounts buys $1.20 strikes.
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