Dollar backs off from key resistance despite positive economic data

A series of better-than-expected US economic data was released on Tuesday to augment the very encouraging US retail sales numbers from this past Friday. Tuesday’s positive data for the month of April included: the Consumer Price Index (CPI) (0.4% rise vs 0.3% expected, an improvement over March’s 0.1% rise), Industrial Production (0.7% rise vs 0.3% expected, a vast improvement over March’s revised 0.9% fall), and Housing Starts (an annualized 1.17 million new buildings beginning construction vs 1.12 million expected, an improvement over March’s revised 1.10 million). Other US data that came out roughly as expected included Core CPI (0.2% rise) and Building Permits (1.12 million annualized). There was no US data released on Tuesday that fell significantly below expectations.

Despite these relatively positive results for the US economy, the dollar generally weakened on Tuesday morning, partly due to continued skepticism over the likelihood of another interest rate hike by the Federal Reserve during its eagerly-anticipated June meeting. In spite of higher inflation figures reflected in the CPI, the Fed Fund futures market as of Tuesday morning was only pricing-in around a 7.5% probability of a June rate hike.

Partially due to this continuing skepticism despite improving economic data, USD/CHF retreated from major resistance around the key 0.9800 level on Tuesday. This level has been tested three times since late March, but has not yet been breached to the upside. Although USD/CHF has been declining in a well-defined downtrend characterized by lower highs and lower lows since late last year, the past two months have seen the currency pair generally range-bound between 0.9800 resistance to the upside and 0.9500 support to the downside. The 0.9800 level is also the 50% Fibonacci retracement of the recent slide from the 1.0100-area high in March down to the 0.9500-area low in April. Both the 200-day and 50-day moving averages have virtually flat-lined due to the noted range-bound trading for the past two months.

Having reached up to and tentatively retreated from the noted 0.9800 level, USD/CHF is now at a critical technical juncture. With any sustained inability to breach 0.9800, the currency pair could continue to trade within its recently established range, potentially moving back down towards the 0.9500 support level once again. In the event of a breakout above 0.9800, especially with any continued improvement in US economic data going forward, the next major upside target is at the closely-watched parity level (1.0000).

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

OPEN AN ACCOUNT