The U.S. dollar’s recovery attempt since last week has been futile. Thanks to poor economic data, Fed officials’ dovish comments and fears over the economic impact of the hurricane, not many people are willing to stand in the way of the dollar’s spectacular slump since the turn of the year.
The dollar has fallen across the board today. After Friday’s disappointing U.S. jobs report, today saw factory orders come in at -3.3% month-over-month for July. Although expected, this was yet another piece of economic data pointing to weakness in the US economy, which could deteriorate further due to the economic damage Hurricane Harvey has caused.
Greenback weakness has been the primary focus of FX trading this year. On Tuesday, the Dollar Index fell to a 2.5-year low of 91.62, with losses exceeding 10% since the beginning of 2017. This underperformance was a result of many factors, including the collapse of Trump trade, convergence in monetary policies, a flattening U.S. yield curve and better economic prospects throughout the globe.
The euro’s minor recovery on the back of stronger-than-expected Eurozone inflation data this morning last only a few moments. After climbing to above 1.19 on news of an unexpectedly sharp 1.5% year-over-year rise in August CPI, the euro/U.S. dollar currency pair then tumbled 50 pips after Reuters reported, citing an unnamed source, that the European Central Bank is growing worried about the recent strength of the euro and that this may increase the chance of a delay or call for a more gradual exit from the asset purchases program.
“Sell volatility, buy the dip” has been the investor mindset for some time when it comes to the equity markets. It appears that this mindset is holding firm, after investors brushed away the market uncertainty that was created in the early hours of Tuesday morning, following the news that North Korea fired a missile over Japan.
Following big falls in some risk-sensitive assets on the back of North Korea tensions, a number of global stock indices and dollar currency pairs ended the session with impressive reversal-looking technical patterns as the dip buyers evidently stepped in to take advantage of the lower prices (see the technical outlook section below).
Equities across the globe traded mostly in the red on Tuesday, after North Korea launched a ballistic missile over Japan. Although investors have become sensitized to such actions by Kim’s regime, firing missiles over Japan is a rare occurrence and the message appears to be that North Korea is ready to escalate tensions.