It’s been a rough day for the world’s reserve currency across the board, especially since the start of today’s European session.
The dollar’s drubbing has come from multiple sources, both domestic and abroad. The most obvious catalyst was this morning’s economic data. The highly-anticipated January retail sales report was abysmal, coming out at -0.8% m/m, “building on” last month’s -0.9% reading. The ex-autos figure was similarly weak at -0.9% m/m for the second consecutive month. Of course, much of the drop could be chalked up to falling gas prices, but retail sales excluding automobiles, gasoline, building materials and food services only edged up by 0.1% on the month, suggesting that Americans may have used their elevated discretionary income to pay down debt rather than go on a shopping spree. Meanwhile, initial jobless claims spiked to 304k vs. 279k new unemployed Americans the previous week, far above the consensus of 282k. This figure is notoriously volatile on a week-to-week basis, but the spike still unsettled dollar bulls.
In overseas news, the Eurogroup was unable to issue a joint statement yesterday, much less come to any sort of agreement, but Greece was able to secure some short-term financing from the ECB’s Emergency Liquidity Assistance program, which bought Greece enough time to pay its bills until at least the next Eurogroup meeting on Monday. Elsewhere, the Bank of England issued a generally sanguine inflation report, suggesting that the BOE still plans to raise interest rates in 2016. Finally, even the yen was able to catch a bid as reports that the BOJ is starting to see further easing as counter-productive surfaced.
Technical View: Dollar Index
Of course, the question on the minds of traders everywhere is, “Does this represent a potential top in the dollar, or is it just a minor setback?” Based on the chart of the trade-weighted dollar index (below), the longer-term uptrend in the greenback remains strong, though we may be in for some turbulence in the short term.
As we go to press, both the 20- and 50-day moving averages are trending higher, as they have been since the dollar began its ascent back in Q3 of last year. The index is currently testing support at its 20-day MA, but the secondary indicators suggest that level may be in jeopardy: both the MACD and RSI indicators have rolled over and are in a state of divergence with the underlying index.
Given these cracks beneath the surface, a break below the 20-day MA could be in the cards, with a resultant pullback to the 50-day MA around 92.00 possible in that scenario. However, it’s important to note that the moving averages, MACD, and RSI are still in bullish territory (not to mention the relative position on US monetary policy compared to most of its rivals), so there’s no reason to suggest that the “King Dollar” is in danger of being usurped any time soon.
Source: Stockcharts.com and FOREX.com. Note that this chart does not necessarily reflect instruments or prices offered by Forex.com