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US Dollar Hits Three-Week Low on Poor Data, Sentiment Shifts

by on February 13, 2014 5:53 pm GMT
 

The greenback sank on the release of poor than expected data that, once again, contradicts economist notions of a robust economic recovery. Retail sales in the United States declined .4 percent, which was much lower than analyst forecasts of zero gain or loss. Weather conditions are being blamed for the string of weak retail sales that declined month-over-month.

Federal Reserve chairwomen Janet Yellen at least got one thing right, the labor market is far from where it should be. Initial jobless claims fell to 339K from 331K in the previous week. Analysts were looking for no change.

The dollar declined heavily, over .50 percent at its lows, on the poor news. “The data is weaker than expected and, frankly, I think the dollar should’ve moved more than it did,” said Greg Anderson, head of global FX strategy at Bank of Montreal. The recently poor data is beginning to outcast the two months of positive data heading into the holiday season, and the dollar is seeing that. However, investors believe the Federal Reserve will halt the taper, and an equity rally took place around mid-day.

The 4H Chart, going out 30-days, shows the bounce from the three-week low as equities began to rally. The dollar is finding resistance at 80.432, or the 78.6 percent Fibonacci retracement from the monthly bottom. The dollar could pull up to 80.5 on a pullback.

4H Chart of DX

4H Chart of DX

The weekly chart showed price action consolidating with resistance at 81.339, but this week’s decline has broken the ascending trend line. It is likely we will see a shift in sentiment if the dollar continues to decline. Equities are up because market participants want a pause in the taper, but that is negative for the dollar. If price action can break support at 80.22, the dollar will likely trend lower sub-79, potentially 79.75/80.

WK Chart of DX

WK Chart of DX