The dollar index has dropped every single day the past week. Even Friday’s robust NFP report didn’t lend the U.S. currency the needed support, in fact the reaction to the report was muted due to the blend of FOMC’s downgrade to its previous rate hike forecast and Fed’s Yellen cautious tone on her last speech in New York, suggesting that most recent labor data is not enough to change the monetary policy outlook. According to latest Commodity Futures Trading Commission report released on Friday, U.S. dollar net longs for the week ending 29th March fell to lowest levels since May 2014, which again explains how recent developments were received by speculators.

The question on every traders’ mind: Is the dollar heading for a steeper downtrend?

The short answer in my view is no. The adjustment in the path of Fed’s monetary tightening policy is almost priced in the dollar, however a slight fall in the DXY can’t be ruled out, with first major support seen at 93.80 “15-Oct low”. This week there’s no tier-one economic data on the U.S. calendar, only a handful of second-tier data that would have either no, or slight impact on the U.S. currency with factory orders kicking off Monday, followed by trade balance and Markit PMI’s Tuesday, and the usual jobless claims on Thursday.  Traders would be more interested about Wednesday’s FOMC minutes, to assess the extent at which the policy makers are divided between the hawkish and dovish groups. On Thursday, International House in New York will be hosting a historic event with U.S. Fed Gurus Janet Yellen, Ben Bernanke, Alan Greenspan and Paul Volcker will all be sitting on a panel, an event unlikely to be repeated.

 

EURUSD: Two failed attempts to close above 1.14  

The single currency appreciated by 2% against the dollar the past week, this is the last thing Mario Draghi needs at the moment as it impedes his pursuit of inflation after he used most available tools in his toolbox. Eurozone inflation dipped for two consecutive months in February and April, meanwhile Thursday’s second reading would likely confirm the deflationary pressures facing the region. This leads us to think that the ECB won’t sit without any action, at least a verbal intervention to limit the currencies appreciation. With this in mind I would still prefer selling the rallies than buying the dips especially if EURUSD approached October’s high at 1.1495.

 

Key event of the Week: RBA Meeting

Despite falling on Friday, the Aussie managed to gain 2.3% against the U.S. dollar the past week, making it the second best performing major currency after the Kiwi. Commodity currencies benefited from the rally in energy and metal prices along with lower volatility driving the carry trade strategies. The RBA will hold a monetary policy meeting on Tuesday, and there’s no indications of easing for the time being with main interest rates likely to remain on hold, however attention will turn on the statement and particularly the bank's view on the current level of the currency after reaching nine-month high against the dollar. If the central bank reverted to comments made mid last year in order to pressure the currency, AUDUSD will likely be capped at 0.7721 in the short term. 

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