The greenback was weaker at the close of North American trade on Thursday with the Dow Jones FXCM Dollar Index (Ticker: USDollar) sliding 0.57% on the session. The losses come on the back of a stellar performance in U.S. equities that saw the Dow, the S&P, and the NASDAQ surge 3.95%, 4.63%, and 4.69% respectively. A slight drop in weekly jobless claims coupled with strong earnings temporarily eased concerns about an imminent dip back into recession. As mentioned in Wednesday’s USD Trading Today report, a significant pickup in risk appetite saw the dollar come off as traders dumped the greenback in favor of higher yielding risk assets. However, it may be too soon to tell if markets have bottomed and despite today’s rally, sentiment remains fragile ahead of economic data out of the US on Friday.
The index continues to straddle the 61.8% Fibonacci retracement taken from the July 12th decline at 9590 after failing to break back into the ascending channel formation dating back to late July. The dollar is likely to continue to consolidate into a newly formed short-term descending triangle formation as investors continue to weigh the risks to the US economy. Interim resistance is eyed at the 76.4% retracement at 9650 backed by former trendline support, now resistance, and 9700. Support rests at the 50% retracement at 9540 followed by 9500.
The dollar fell against all the component currencies, highlighted by a 1.71% decline against the aussie as improved appetite boosted demand for yields. However, the aussie’s rally may be short lived as interest rate expectations continue to deteriorate on the back of last night’s weaker than expected employment report. The yen was the weakest of the lot posting a marginal advance of 0.05% on the session. The move suggests investors remain skeptical about whether sentiment has actually shifted and despite the looming risk of a possible Japanese intervention, the yen continues to be well supported. Accordingly, dollar price action is likely to remain.
Friday’s economic docket may dictate dollar price action with July advanced retail sales, the University of Michigan confidence survey, and the June business inventories on tap. Consensus estimates call for sales to climb by 0.5% from a previous read of just 0.1% a month earlier. Meanwhile the Michigan confidence survey is expected to ease slightly with a print of 63.0 from 63.7 with business inventories also seen lower at 0.6% from a previous read of 1.0%. A weaker than expected print on the data is likely to rekindle speculation that the US recovery may be faltering after the massive swings seen in equity markets over the past 2 weeks. Subsequently, the dollar is likely to remain relatively supported until a more substantial shift in risk taking behavior carries over into the FX markets. A stronger print is likely to see the dollar lower as concerns ease and investors go back on the hunt for yields.
Michael Boutros, Currency Analyst for DailyFX.com is a Technical/Fundamental Analyst specializing in the FX markets. E-mail: firstname.lastname@example.org.