The Dollar Correction is Here

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Market Drivers May 22, 2018
Dollar weaker across the board
UK data beats
Nikkei -0.18% Dax – 0.08%
Oil $72/bbl
Gold $1294/oz.
Bitcoin $8250

Europe and Asia:
GBP UK PSNB 6.2B vs. 7.1B

North America:
No Data

Dollar was weaker across the board today as nascent end of the month flows and profit taking set the buck back against all the majors.

After the reversal in yesterday’s North American trade where the EURUSD bounced off the 1.1700 level and closed at the day’s highs, the single currency pushed higher hitting a high of 1.1830 before retreating somewhat.

The moves are driven by nothing more than short covering and profit taking, but the pair is so oversold given its near 800 pip plunge over the past two months that a further bounce may be due. Tomorrow EZ flash PMI data – if it beats the forecast and shows that demand has stabilized in the region – could be the perfect catalyst for further gains and could even squeeze the longs towards the key 1.2000 level over the next few days.

In the UK meanwhile, the Public Sector Net Borrowing figure came in better than expected and that along a host of testimony from MPC members helped cable rise towards the 1.3500 figure. Although almost all the BoE members were cautious in their Parliamentary testimony, they all suggested that monetary policy will move towards normalization sooner rather than later. This indicates that the much expected BoE rate hikes will simply be postponed to end of summer rather than 2019.

UK data is the most important economic report in G-7 calendar this week and tomorrow’s UK CPI data as well as Thursday’s Retail Sales will go a long way to determining if cable can move through 1.3500 and stage a sustained rally.

With no data in North America today US yields could be the driver of trade for the rest of the day. If the 10Y can climb above 3.10% once again the dollar is likely to find some footing, but a slide back towards the 3.05% level could the fuel for further euro and cable gains as the day proceeds.

Boris Schlossberg
Managing Director

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