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Is the dollar finally back on a bullish trajectory?

  • After a sharp slide for much of March, pressure on the US dollar finally began to alleviate somewhat this week. The greenback rebounded against its major counterparts, most notably the euro and yen.
  • The dollar rose against the euro due in part to the ECB message this week that the markets had “overinterpreted” its March communications and that it had meant to stress “reduced tail risk” rather than indicate an impending end to its easy money policy.
  • The dollar rebound has also been helped along by recent comments from Fed officials opening the argument once again for four rate hikes this year rather than the three that were reiterated during the March FOMC meeting.
  • On the economic data front, Wednesday saw consumer confidence for March far exceed expectations at 125.6, signaling the highest confidence in 17 years, which helped provide another boost for the dollar.
  • Though US President Trump has lately run into increased concerns about the path of his pro-growth economic agenda after having failed to repeal and replace Obamacare, the dollar has held up well despite this roadblock.
  • On the euro side, the upcoming French elections next month could place further pressure on the euro if far-right, anti-EU candidate Marine Le Pen gains more ground, which would put the future of both the EU and the euro in question.
  • Next week, critical US data will be released, including the ISM manufacturing/non-manufacturing PMIs and the highly-anticipated non-farm payrolls jobs report. If the trend of improving US data continues next week, it could make the prospect of four Fed rate hikes even more likely, further providing support for the dollar.
  • From a technical perspective, EUR/USD has made a tentative breakdown back below the 1.0800 level and below a rising trend channel that has been in place since the 1.0500-area lows in early March. If price action continues this downside momentum in the event that the US dollar remains in recovery mode and the euro stumbles, the prolonged trading range of the past several months could extend, with the primary downside support target remaining around the key 1.0500 level.

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