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The US dollar began the week with an attempt to recover some of the losses. This natural correction now seems like a dead cat bounce.  

Pending home sales showed a drop of 5.6% in September, significantly worse than a rise of 0.5% expected. Weak data from before the government shutdown certainly weighs on the dollar.

The most important indicator, Non-Farm Payrolls, came out weaker than expected last week, with a gain of 148K. Even if it wasn’t a big miss, it led to a big sell-off as things could only have turned to the worse after the shutdown.

It’s important to remember that the shutdown and the looming debt crisis aren’t limited to the 16 days of the crisis, but the damage is far wider: consumers are less confident and investors are more uncertain.

The same logic applies to the pending home sales: a big disappointment before the crisis is quite worrying.

Before the publication, EUR/USD lost ground and dropped to 1.3774, close to Friday’s lows. The pair is now back above 1.3785. GBP/USD also fell to lows under 1.6140 and has bounced back above 1.6160. USD/JPY was already getting closer to 97.80 and is now retreating.

Not all is bad with the US economy: industrial production is up 0.6% in September, better than 0.5% expected, and capacity utilization rate is at a high level of 78.3%.

However, even if the economy could have walked on its own before the crisis (and this isn’t clear at all), it now seems that the Fed will be supporting the economy through tapering for a longer period of time than expected, and this weakens the US dollar.

Further reading:  Gold Maintains its Ground during Potential Recovery