TGIF! Welcome to another day of FX trading. In today’s chart is an update of the US dollar index (USDX) that I presented the other day (please check it here). Back then the index was still moving within a descending channel. My thinking was, it would continue to move lower since the channel was still intact. The index, however, broke above the resistance of the channel in yesterday’s price action. Now, will it start to trade on higher ground? Maybe. However, it could still move south or sideways given the lack of a reversal pattern (double bottom, cup and handle, inverted head and shoulders,etc.). So if it weakens again, it could fall back to the 80.000 area. A potential bearish divergence, where the price moves lower and the stochastics move higher, suggests this possibility.
Several key economic releases today will be critical for the USD’s short term valuation. Later at 9:00 am GMT, the euro zone’s second quarter flash GDP will be reported. Euro zone’s economy is seen to have expanded by 0.7% in the second quarter on top of the 0.2% gain during the first saga of the year. But given Germany’s better-than-expected 2Q GDP score of 2.2% (vs. 0.5%), an upside is likely in the broader euro economy since about a third of the euro zone’s total production is from Germany.
The US’s retail sales and CPI figures in July plus the University of Michigan consumer sentiment index in August can cause some volatility. the US’s month-over-month core CPI and headline CPI in July are seen to be at 0.1% and 0.2%, respectively. Retail sales on the other hand, are projected to have to gain by 0.5% after dipping by the same rate in the previous month. Furthermore, consumer sentiment in August is anticipated to reach 69.4 from 67.8. So if any of these accounts comes in at least in line with expectations or better, the market’s fear can be eased thereby causing a consolidation or even a rally in equities and the non-dollar currencies. Worse than projected results, on the flip side, can be positive for the USD given yesterday’s risk aversion-dollar movement.