- EUR/USD has dumped to below the 1.30 handle, dropping from 1.3246 to a low of 1.1292 so far.
- The greenback is on the warpath following a dovish RBA, China giving some leeway in its GDP projections for 2019, dovish sentiment for the ECD and strong domestic data.
EUR/USD has been pressured on a number of counts. Firstly, the U.S. data today has given much-needed oxygen to the greenback. Bulls have been chipping away into the bid of late which has seen the DXY recover through the H&S’ neckline at 96.60/70 territory. Today, the DXY is scoring a high of 97.01 so far which is a major level for the FX space.
Late Fed cycle USD strength
But there may be more to the dollar’s strength of late. While the Fed is on hold, analysts at Westpac explained that there is a long history of “late Fed cycle USD strength”…”The USD has continued to rally for some time well past the last Fed hike in prior tightening cycles. We may be in the midst of another one of these episodes.”
The mood is upbeat again for the U.S. economy following a series of data releases. The US February ISM non-manufacturing index 59.7 vs 57.4 expected was the major catalyst – Prior was 56.7 with a big jump in new order – New orders 65.2 vs 57.7 prior which is the highest since 2005. US new home sales for Dec arrived at 621K vs 600K estimated which is another great sign for the US economy.
US stocks are on the backfoot which could imply that there are now fears that the Fed could surprise later this year with a rate hike should the data continue to unfold such as today. We have the nonfarm payrolls at the end of this week to go, and if that is solid, as expected, the dollar is likely to continue on its northerly trajectory, especially against the euro if the ECB downgrades growth very sharply and inflation too. “The ECB is likely to buy itself time at this meeting to assess the expected rebound in activity data. Risks are likely to remain to the downside,” analysts at TD Securities explained.
China softens GDP target to a range of between 6-6.5%
Bears cannot get too excited at this stage on a techncial basis though, not until a break of the Nov low, according to analysts at Commerzbank. This level is down at 1.1216 where the analysts feel it will continue to be underpinned. However, “below 1.1216 will target the 61.8% Fibonacci retracement of the 2017-18 advance at 1.1186,” the analysts argued.