The dollar rally is officially dead with the latest bout of weak employment data triggering a major downside correction in the correction. The latest dollar bounce after Friday’s payroll disaster is largely a temporary technical rebound with the closure of European financial markets seeing limited volume in currency trading. Until the Reserve Bank of Australia announces interest rates overnight, markets will continue to trade in a subdued fashion owing to lacking participation and fundamental announcements. The slump in the American has reached the point at which it is increasingly possible that the S&P 500 will see profits and earnings decline on an annualized basis for the first time since 2009. With real fundamental economic data and confidence in equity markets foundering, the bounce in the dollar is likely both technical in nature and transient in character.
With multiple pairs on the verge of breaking past major technical levels established on Friday, the outlook for the dollar is not pretty. Most likely to gain from the vulnerability in the dollar is gold prices which continue to appreciate on the back of an extended timeline for a rate hike after multiple promises from the Federal Reserve to hike rates in 2015. Although the Federal Reserve intends to remain “data dependent” in policy decisions, it risks destroying its credibility by over-promising markets just as underlying economic fundamentals collapse. The narrowing of the US trade deficit while hailed as the benefit of reduced oil import dependence, needs to be put in perspective as a factor of slowing trade, not an economic recovery. The sell-side media seems intent on making this incident look like a bump in the road, but rather it should be viewed from the lens of foreshadowing further complications.
Dollar Dead Cat Bounce Over
Market Trends - 06/04/2015