The US dollar remains close to the quarterly peaks against the Euro on Thursday, backed by weaker US inflationary pressures, but also due to lower-than-expected macroeconomic outlooks outside Europe.
While the US inflation recorded the slightest growth rate in January for the last 19 months or an increase of only 1.6% on an annual basis, the appreciation of goods and services is above expectations from the analysts. Although weaker, inflationary pressures have attracted traders’ attention, as the benchmark provides an additional boost to the US dollar.
The more accurate estimate is that, excluding the fall in energy and food, the US primary inflation rose by 0.2% for the fifth consecutive month, and for the third consecutive month, the core prices rose by 2.2% on an annual basis.
The US dollar index, measuring its value against the six major currencies, was slightly higher, to 97.20 points, rising by 0.5% in the previous session. The index rose 1.7% this month after two consecutive months of losses. This contrasts with the fluctuations of the euro. The single European currency, which has about 58% weight in the dollar index, collapsed by 1.63% since early February, as a result of weaker than projected eurozone economic data and expectations that the European Central Bank will remain extremely well-suited to the euro area economy this year.
The index moved higher and printed fresh 2019 highs during overnight trading in the 97.25-97.30 band, just to ease some pips afterward. The US dollar index thus remains poised for a visit to 2018 peaks at 97.71 recorded in late December. In the meantime, the constructive outlook on the buck is expected to remain intact as long as the 200-day SMA at 95.49 underpins.
The Euro is trading below the psychological limit of 1.13, to 1.1283 USD. Earlier during the session, the EUR/USD pair reached its lowest daily level of 1.1245 USD.
The US dollar was hit earlier this year by the US Federal Reserve (Fed) switching to a more cautious monetary policy. However, the latest data suggest that the central bank will have to be vigilant in terms of price pressure even when it adapts to the increased risks to economic growth.
With the dollar remaining supported across the board, the EUR/USD could break decisively lower after spending the best part of the last 6 months or so trying to form a base around long-term support circa 1.1300.
If support was strong here, surely we should have seen a rally by now. The lack of a rally suggests the pressure is growing for a potential breakdown, with lots of liquidity resting below the November low of 1.1215 which could potentially be tripped in the coming days. That being said, the short term technical bias would flip back to the bullish side within the existing longer-term range-bound configuration, should price break above this week’s high of 1.1340. But for the bulls to re-emerge in a meaningful way, we do need to see price now make a distinct higher high.
The Australian dollar, which is often considered a barometer of global risk appetite, rose by 0.3% to 0.7110 USD, gaining about 0.5% in the previous session, due to optimism before the start of another round of China-US talks today in Beijing. The Australian has gained additional strength from stronger-than-expected economic data from China, Australia’s largest trading partner.
The AUD/USD pair caught some fresh bids on Thursday and is now headed back towards the overnight swing highs, or one-week tops.
Any subsequent up-move is likely to confront some fresh supply near the 0.7145-0.7150 USD area, above which the pair is likely to aim towards testing the 0.7180 USD intermediate hurdle en-route the 0.7200 USD.
On the flip side, sustained weakness below the 0.7100 USD handle might negate any near-term positive bias and accelerate the fall back towards weekly lows, around the 0.7060-0.7050 USD area.