Dollar Rally Takes a Pause

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Market Drivers March 12, 2015

Euro retakes 1.0600 as short squeeze pushes it higher
Kiwi rambles on post RBNZ to 7400
Nikkei 1.43% Europe -0.02%
Oil $48/bbl
Gold $1158/oz.

Europe and Asia:
AUD Employment 15.6K vs. 15.3K
EUR GE CPI 0.9% vs. 0.9%

North America:
USD Retail Sales 8:30

After posting fresh 12 year old lows just below the 1.0500 figure EUR/USD popped higher on a profit taking short squeeze move to rally to 1.0645 before finally dropping once again. After days of relentless dollar buying the currency markets took pause as traders lock in profits and squared their positions.

The dollar selloff was also aided by better than expected data elsewhere, especially in Asia Pacific region where both kiwi and Aussie rallied strongly. The kiwi put in a massive ramp rallying more than 200 points off the lows after RBNZ offered no hints that it would cut the benchmark rate anytime soon. Many traders who were concerned that the New Zealand central bank would follow their brethren across the Tasman Sea were relieved to see rates remain at the current 3.5% rate.

The kiwi continues to sport the highest yield amongst the advanced industrialized nations and that fact alone should attract some carry trade flows to the pair now that concerns about a rate cut have been allayed. The pair has long term support at .7200 and may now rally to 7500 if the dollar profit taking continues.

In Australia the news was also modestly better as the employment data came in roughly in line at 15.6K while the unemployment rate sunk to 6.3% from 6.4% eyed. The news suggests that RBA may be able to hold still for a few months, though many traders believe that the output gap between jobs seekers and jobs available is still negative and will force the RBA to ease eventually.

The dollar selloff could quickly reverse in North American trade today if the Retail Sales numbers rebound as expected. The market is looking for a bump of 0.3% versus a decline of -0.8% the month prior. If the consumer does show a rebound traders are likely to become more confident about a June hike. However if the numbers miss for a second month in a row the dollar correction could resume at a vicious pace. Over the past few days the anti-dollar positions have been battered on the assumption that US will begin to tighten even as the rest of the G-20 world continues to loosen monetary policy. If today’s number puts that assumption in doubt the drop in the dollar could be severe with USD/JPY dropping back to 120.00 while EUR/USD climbs towards 1.0700

Boris Schlossberg
Managing Director

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