Data & Virus Damage Hurting The Dollar

Data & Virus Damage Hurting The Dollar

US Dollar Losing Steam?

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Over the final month of 2019 and the first month of 2020, the Dollar Index enjoyed a three-figure rally. The push higher was fuelled mainly a string of better-than-expected economic releases. With ISM manufacturing and non-manufacturing readings surprising to the upside last month, along with strong NFP readings and better survey data, the Dollar surged to highs of almost 100 on the index this month before reversing suddenly over the last few days. The factors leaning on the Dollar at this point are a combination of a few weaker-than-expected data releases and an uptick in concerns around the ongoing COVID-19 outbreak.

Both retail sales and CPI printed in-line with expectations while the flash manufacturing PMI reading released last week was weaker than expected, disappointing after the strong reading in January. Following on from that, the January FOMC meeting minutes released last week were also something of a dampener. Although policymakers concluded that they were comfortable keeping rates on hold for the time-being, the several mentions of corona-virus as a key threat were received with some alarm by investors.

This week, The CB consumer confidence number came in a little lower than expected at 130.7 vs 132.6 expected. Despite the reading marking a six month high and an increase from the prior month’s 130.4, it was not enough to keep upside momentum in the Dollar which continues to correct lower currently.

COVID-19 Hurting Sentiment

The ongoing spread of COVID-19 is also taking a toll on the Dollar. With over 50 confirmed cases in the States, and the spread seemingly intensifying globally, the market is beginning to fear the extent of the impact on the US economy. President Trump has been doing his best to reassure investors and citizens alike that the spread of the virus is under control, though it seems that investors at least are sceptical given the fall in US equities prices and the US Dollar itself. Meanwhile, traditional safe havens gold and the Japanese Yen have seen a surge in demand.

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Stock Markets Sinking

The fall in stock market prices this week has been an alarming development, drawing words of caution from many senior players. Mohamed Al-Erian, chief economist at Allianz warned traders against buying the dip. While speaking with CBNC this week, the famed market commentator warned against buying the dip and said that while the strategy can usually work, this time “its different”. Earlier in the month, Al-Erian warned investors of the dangers of the coronavirus outbreak which he said will “paralyze China” and “cascade throughout the global economy, which is what we are seeing now”. On Monday, the Dow Jones Industrial Average plummeted over 1000 points lower, falling more than 3.5% in its worst single day’s losses of the last two years. With the World Health Organisation warning that the global spread of the virus could get much worse, there could be much lower to go for equities markets.

Technical View

DOW (Bearish below 25847)

From a technical viewpoint. The DOW has collapsed through the monthly pivot at 28547 and also the rising trend line from 2018 lows. Price has now also broken below the support level created by broken highs at 27366 and a further move lower, down to the yearly pivot at 26594, seems in likely, which will be a defining level for the market, either offering support for a correction or opening the path for an even deeper sell off.

Data & Virus Damage Hurting The Dollar

 

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

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