North American traders are filtering into their desks to see that last week’s dominant theme – dollar strength – is carrying over into the first trading day of this week. As of writing, the dollar index is trading at 99.73 after spiking up to 99.99 earlier today. The trade-weighted measure of the greenback’s value is now back within striking distance of its 11-year high at 100.40 after the 4% pullback in late March. We remain skeptical that the primary catalyst for this bullish move (the potential for a Fed rate hike in June) is legitimate given the weak US economic data of late, but the momentum in the market is still clearly in favor of dollar bulls for now.
Drilling down to the biggest component of the dollar index, EURUSD is currently working on its sixth consecutive bearish day. Last week’s drop has essentially erased last month’s short-covering rally and EURUSD bears are more confident than ever that the pair could hit 1.00 soon (see our free special report, “EURUSD: To Parity and Beyond?” for more on this topic). Looking to the chart, the pair continues to find resistance at its 50-day MA (currently near 1.10), while the MACD has rolled over, signaling a return to bearish momentum. Meanwhile, the RSI remains mired beneath the 60 level, indicating that the downtrend is still healthy.
For this week, the key level to watch will be 1.0500, which approximates the mid-March low in addition to representing a key area of psychological support. If that support level is conclusively broken, the calls for parity this quarter will grow even louder. On the other side of the coin, more conservative traders may want prefer to fade any bounces toward 1.0800 or 1.0900 as an opportunity to join the downtrend at a better price.
Key Economic Data / News that May Impact EURUSD this Week (all times GMT):
- Today: US Federal Budget Balance (18:00 GMT)
- Tuesday: Eurozone Industrial Production (9:00), US Retail Sales and PPI (12:30), US Business Inventories (14:00)
- Wednesday: ECB Monetary Policy announcement (11:45) and Press Conference (12:30), US Empire State Manufacturing (12:30), US Industrial Production and Capacity Utilization (13:15)
- Thursday: US Initial Unemployment Claims, Building Permits, and Housing Starts (12:30), US Philly Fed Manufacturing Index (14:00)
- Friday: Eurozone Final CPI (9:00), US CPI (12:30), Preliminary UofM Consumer Sentiment (14:00)