Since our last article on the Dollar, we have seen the bullish push into the weekly level of 92.50, with Bulls still eyeing the 93.00 handle as the next upside target. Optimism around declining cases, reopening of the economy, vaccination rollouts & the anticipation of rate hikes have seen Bulls take hold in the first quarter of 2021.
Taking a look at the 3 month timeframe, we have interesting price action being printed since ’85. We have seen 2 drives into the lows with the 3rd drive high being printed in the wake of covid. With 25% of all dollars being printed in the last year, devaluation of the dollar is highly anticipated. With average lifespans of fiat currencies being 27 years, has the Dollar overstayed its welcome coming into its 107th year since being created?
Staying on the quarterly for a moment, it is important to envision how the yearly candles would open and close. Generally we see a wick on either end of a candle. Looking at the first quarter of 2020, we see upside in and above the parity level of 100.00, creating a wick high before seeing the dollar roll over for the remainder of the year.
Now, looking at the current first quarter of 2021, we have seen upside into 92.50 which may form a wick high following the $1.9 Trillion stimulus package and the upcoming infrastructure package on the horizon.
Durable Goods data came in negative at -1.1% vs the expected 0.7%. This is defined as products with a life expectancy of more than 3 years (automobiles, computers, appliances etc). The reopening of the economy remains a positive theme in the markets, however these figures may signal a slower than expected rise in production. It is important to note that these are preliminary numbers.
Flash Manufacturing came in at 59.0 vs the expected 59.6. This figure is negative, however still in expansion territory, being above 50.0. Fed Chair Powell testifies at the time of writing alongside the treasury secretary Janet Yellen. Investors will be lending an ear incase we find any more clues or future outlooks from the Fed.
Taking a look at the DXY on the weekly timeframe, we can see the consolidation boxed off from March when we had the declaration of a global pandemic. Price action was extremely indecisive and choppy until we saw a breakout in June. Since then we have had clear direction on the Dollar as we continue to slide. Above we have hi-lighted the retracements seen with arrows. We will be monitoring the 92.50-93.50 handle for wick high formations, creating the next lower high to take the Dollar lower.
Looking at the daily, we are piercing into resistance once again coinciding with the 61.8% fibonacci. The 93.50 handle mentioned above also lines up with the 78.6%. In the short term, there is potential for extended upside, however we are awaiting clear reversal signs for downside on the US Dollar. A closure above these levels and more importantly, 95.00 will signal a strong bounce back in the Dollar and invalidate shorts.
Fundamentally, we have no more data releasing today however we do see FOMC members speaking at 7:35PM, 9:00PM and 01:00AM respectively. Tomorrow we have the release of the final GDP q/q, unemployment claims and more FOMC talks. Friday will end the week on an interesting note as we see Core PCE data, personal income & spending m/m and the revised consumer sentiment & inflation expectation coming from the University of Michigan.
We hope today’s blog was thought provoking and provided valuable information on the way forward for the Dollar. As always, exercise risk management and we hope you have a great week further. For more updates like the one above, subscribe to our blog.