Is Dollar Rally Overdone?

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Market Drivers March 13, 2015

Sideways markets as little news to drive trade
NZD Business Manufacturing improves
Nikkei 1.39% Europe .05%
Oil $47/bbl
Gold $1158/oz.

Europe and Asia:
NZD Business Man 55.9 vs. 50.7
GBP Construction Output

North America:
CAD Unemployment 8:30

Its been a quiet and lackluster night of trade in the currency market with the dollar resuming its uptrend after yesterday’s correction. The greenback was up across the board in morning European dealing strengthening as the session went on as demand for dollars continues unabated.

The markets clearly remain in a momentum mode as even disappointing fundamental data like yesterday’s Retail Sales report is unable to slow the dollar rally for more than a day. Yet three months of weak consumer spending numbers should give even the heartiest of dollar bulls pause as it may cause the Fed to hold off on any decision to tighten until September at the earliest .

As BOE Governor Mark Carney has pointed out 16 out 18 industrialized nations have seen their inflation reading run below expectations as deflationary forces continue to exert pressure on the global economy. Indeed, all of the central bank actions in the G-20 universe since the start of the year have been on the easing side and its difficult to imagine that the Fed would stand alone on the other side of the scale, especially since US consumer demand is anything but torrid at the moment.

Next week’s FOMC meeting could provide some insight into the committee’s current thinking and given Ms. Yellen predilection for caution the statement may temper expectations of an imminent rate hike this summer. With the market now very likely long dollars, some corrective moves could be in the offing as positioning and sentiment are clearly getting skewed.

Still it is very hard to get in front of the dollar tsunami as speculative flows are clearly pouring into the greenback. However with EUR/USD now at key 1.0500 support and cable just below the 1.5000 support some bargain hunting may come into the market especially if the Fed signals further “patience” ahead.

Boris Schlossberg
Managing Director

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