The dollar fell sharply against the yen overnight when news of the latest North Korea missile launch hit the wires. However, the USD/JPY then bounced strongly, lifting rates to a new weekly and monthly high of above 111.30. Against other Asian currencies, the dollar fell, including against both Australian and New Zealand dollars. Against European currencies, it fell even more profoundly, especially the pound which caused the GBP/USD to hit 1.36+ this morning as traders continued to buy sterling following the hawkish Bank of England meeting yesterday. The EUR/USD also rose a little while USD/CHF fell.
So, in short, the dollar has been trading mixed so far in today’s session. But could it now turn higher? Yesterday saw US CPI come in at +0.4% month-over-month versus +0.3% expected, while core CPI printed +0.2% as expected. On a year-over-year basis, CPI rose to 1.9%. Yet, bizarrely, the dollar index ended the day lower and at the time of this writing, it was again in the red. This is in part because of the rally in the cable. But the EUR/USD also finished higher yesterday while the USD/CAD gave up its earlier gains to close flat. The EUR/USD was trading higher at the time of this writing. So, the dollar hasn’t really reacted positively to news of the stronger-than-expected rise in US CPI. Today will see the release of Retail Sales, Empire State Manufacturing Index, Industrial Production and UoM Consumer Sentiment, among a few other not-so-important macro pointers. If these figures also show improvement in economic activity in the US then we may see a more noticeable dollar recovery, otherwise, the downtrend could resume.
With the EUR/USD pair being lower on the week so far, but coming off its lows sharply over the past couple of days, the next move in this pair could be important in terms of determining the near-term trend. It is worth noting the fact that it broke last week’s low at 1.1868 but refused to go further lower. As a result, the last swing low at 1.1825 has been left intact – for now, anyway. So at this stage, the retracement we have seen from last week’s high can only be treated as a normal pullback in what still is a bullish trend. Only when we have a lower low would the bullish trend technically end. Nonetheless, the EUR/USD’s failure to clear long-term resistance around 1.20, specifically the 1.2040/45 area, may be a sign that the bullish trend could be about to end. If that’s the case, key resistance levels should now hold rather than break. The first such level is between 1.1960-1.1980 where the EUR/USD was trading around at the time of this writing. Further Resistance comes in at 1.2015 – the head of the inverted hammer candle. Any move north of 1.2015, especially on a daily closing basis, could be a sign that the bullish trend has more juice left in it.