Dollar Rally May Be Short Lived

Market Drivers for January 8, 2018

  • Majors slide off key levels
  • EUR data in line
  • Nikkei 0.89% DAX +0.36%
  • Oil $61/bbl
  • Gold $1317/oz.
  • Bitcoin $15200

Europe and Asia EUR: EZ Sentix Confidence 32.9 vs. 31.3 EUR: EZ Retail Sales 2.8% vs. 2.2%

North America No data

The majors retraced against the dollar in a quiet start of the week trade with EURUSD giving up the 1.2000 figure as profit taking and technical resistance levels kicked in.

With little economic data on the calendar until midweek, the markets were still trading on last Friday’s US NFP data which proved to be mixed but not as dollar negative as initially thought. Last Friday’s US payrolls showed a steady gain in jobs, but only a modest rise in wages. Still, on second assessment of the data, traders saw little reason to doubt that the Fed will try to hike rates three times this year and that provided an excuse for some dollar strength in late Asian and early European dealing.

Euro tumbled from 1.2050 to trade as low as 1.1987 while Aussie fell from .7870 to .7827. Both pairs hit key critical resistance with EURUSD especially vulnerable as it was unable to clear the three-year highs at the 1,2092 level. Some analysts have also pointed out that spec positioning in euro futures on the CME hit more than 100K contracts – a level consistent with corrections in the past.

Still, it’s too early to declare the dollar selloff over, especially given the fact that all this strength has not translated into any gains against the yen. USDJPY remained mired near the 113.00 level despite the fact that US yields are near their recent highs at 2.47%. The disconnect suggests that the FX market is still quite skeptical of any aggressive action by the Fed this year.

With no data on the docket today, trading could remain lackluster for rest of the day, but if EURUSD recovers the 1.2050 level the early morning selloff will be quickly forgotten and bulls will try to mount yet another run at the 1.2100 level as the day proceeds.

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