The dawn of a new week is upon us here in North America and we have awoken to see some previously struggling currencies discovering some newfound vigor as they have rallied against the stalwart USD. Of course, the USD has been so strong over the last few months that it seemed that it was only a matter of time before there was some sort of move against it, but the question looms regarding how long this counter-move might last. Looking at the landscape surrounding the USD so far today and later this week could be one effective way of foreseeing the future, and luckily, we have already seen some data released this morning that could give us a clue to USD weakness thus far.
The figures released this morning haven’t painted the prettiest of pictures for the US economy; Empire State Manufacturing Index, Industrial Production, and NAHB Housing Market Index all missed their consensus expectations with IP even having its previous figure revised a full 0.5% lower than originally reported. There’s a strange thing happening with US data lately that seems to be screaming for someone to notice; while employment figures have beaten even the most optimistic of expectations, most other figures haven’t been keeping up. The most glaring example is Retail Sales that declined 0.6% last week, but looking at today’s releases provides a good example as well – this is the 2nd straight miss for Empire State, the 3rd straight miss for IP, and NAHB has underperformed for 4 straight months.
So which narrative are we supposed to believe? The one that says that employment will lead the recovery, and everything else will catch up; or the one that says employment is a bunch of BS, and the USD is about to experience a reckoning? Factoring heavily in to this dilemma is the decision by the Federal Reserve later this week where the venerable institution is expected to drop the term “patient” from their statement, which, if presumed to be true, could provide USD strength in the lead up to that event.
No matter which narrative you are prone to believe, there may be one currency pair where it doesn’t matter what happens; the EUR/USD. The European Central Bank’s Quantitative Easing program is in full swing which has so far had a negative effect on the euro, and Grexit discussion simply won’t go away. Therefore, it seems prudent to look for strength in the euro that could potentially be fleeting moving forward. Luckily, we have such a scenario setting up as USD weakness has brought the EUR/USD back up to the 1.06 figure where a cluster of previous resistance lies nearby. If the negative vibe remains for the EUR the recent rally may be short lived, and opportunity to get back on the resumption back down may be shortly in hand as resistance looms nearby.