On the left side of the above chart we can see the trend of ‘sell the dollar and then sell the dollar some more’ remained in place early Thursday despite a raft of data in Europe which was largely ignored, unless it could be interpreted as a USD negative. This trend started on the back of the market pricing in further quantative easing by the Fed but has now turned into a slightly ridiculous trend that lacks a logical catalyst. However, we reached a short-term inflection point when the euro crossed the psychological 1.40 level and the currency was hit with a bout of profit taking as some traders wished to lock in their profits at such a key level (despite longer term charts suggesting the euro could rise as high as 1.44 and still be in a downtrend). Also at this point the dollar index encountered some moderate support below 77.00 and managed to put in a decent intraday bounce allowing the index to end flat on the day. After this dip and recovery move played out yesterday markets quietened down significantly, not surprisingly, as traders turned cautious ahead of earnings season and the US jobs report which is due later today.
Looking ahead, we are cautious in suggesting that today will be a day of consolidation ahead of the key NFP release since in recent days we have seen dollar selling sparked from the smallest of events. Therefore, we suggest taking some money off the table and locking in profit for those holding short-dollar positions while searching for new entry levels. However, we do caution that a significant correction is due with technical studies severely stretched in almost all of the USD’s trading partners.
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