The US dollar is up for the second day as the bad data continues to mount, and the markets are continuing to discount everything on sporadic cold weather. From the labor force to the housing sector to manufacturing in key regions, the economic data continues to come in weak and further suggests the $3-4 trillion the Fed has added to their balance sheet has had a weak return on investment.
As market participants shrug off bad data in hopes of capital gains, the dollar was perked up as the Federal Reserve continued to reassure that the taper will continue unless the economic outlook changes dramatically. “Despite the weak data, the foreign-exchange market is not in a panic,” said Greg Anderson, head of global FX strategy at Bank of Montreal. The dollar will benefit from finding support after sell-offs.
A few questions remain: at what point will the outlook change if the data remains weak? Also, will the Fed’s urge to get out of asset purchases override a sagging economy? “Even if we get some weaker U.S. economic data, the Fed will not easily stop tapering and that’s being priced in by the market,” said Noriaki Murao, managing director of the marketing group at the Bank of Tokyo-Mitsubishi UFJ Ltd. If the Fed does reverse course at some point, the dollar would be taken out to the woodshed.
Technically, dollar futures have found support at daily support levels of 79.81 and 80.20. Thursday’s session remained positive, but there was some selling at 80.45/50. Tomorrow’s existing home sales data could influence the dollar’s direction, but it is likely a bad print will be thrown out due to weather.
A break above 80.45/50 would lead the dollar to 80.63 where both price action resistance and the 20 EMA meet on the daily chart.