Several trend moves of the past couple of weeks are correcting. Signs of the correction began yesterday in North America. The dollar was unable to sustain gains despite a string of stronger than expected data, including January CPI, retail sales, industrial output, and the Empire State manufacturing survey for February. Â
There does not appear to be a fundamental trigger. Market expectations for more Fed hikes this year than the last two combined solidified. This is evident in the Fed funds futures strip, and the US 2-year premium over Germany edged closer to 2.05% multi-year high set at the end of last year. Comments from NY Fed President Dudley, on the back of Yellen’s testimony to Congress, also suggested the strengthening of the Fed’s conviction by acknowledging that the balance of risks is shifting to more growth than expected rather than less. Â
The Dollar Index had moved higher for ten consecutive sessions before reversing yesterday’s gains to close lower. Yesterday and today’s losses have seen the Dollar Index retrace 38.2% of the advance since February 2. That retracement objective was near 100.80. The 50% retracement is found near 100.50 and the 61.8% retracement by 100.20. Â
The euro recorded a reversal pattern yesterday–a hammer candlestick–, and there has been following through euro gains today. It had been sold to almost $1.0520 yesterday before the short-covering bounce lifted it to new session highs in late turnover, and managed to finish the North American session at $1.06. Short covering today lifted the single currency to $1.0640, which is the 38.2% retracement objective, but it does not appear over. The 50% retracement is seen near $1.0675 and the 61.8% retracement is $1.0710. Â
Softer US yields, weaker Japanese stocks, and the corrective pressures have seen the dollar back away from yesterday’s test on JPY115 to return to JPY113.50. At JPY113.80, the greenback surrenders 38.2% of its recent gains. The 50% mark is at JPY113.30, and the 61.8% retracement objective is found near JPY112.90. Â
