The dollar is staying strong. Fundamental analysis for 30.05.2014
30.05.2014
The macroeconomic statistics, which were published during the last few days, were extremely ambiguous. Despite a series of positive data on the U.S. in recent months, according to the latest estimates of GDP in the first quarter, it dipped a full percentage point, marking the first decline in the U.S. economy, since the IV quarter of 2011. Moreover, the statistics were even worse than the most pessimistic expectations.
No sharp decline in the dollar occurred only because the prevailing view is that the drawdown will be short, and that the weather factors are to blame. Indeed, because of the unprecedented cold for America, the investment activity in the beginning of the year was extremely low. In addition, the reduction in government spending on defence was a painful blow to the GDP, as well as the rising imports on the background of a strengthening dollar.
Moreover, the current figures lead us to expect very strong growth in the second quarter, which keeps the American currency from falling. The number of applications for unemployment benefits fell to 300k - one of the minimum values in recent time. Also the service PMI and the factory orders indicator showed good growth, which generally allows the market to specifically focus on the current positivity.
This positive nature of current statistics would allow the Fed to keep up the pace of reduction in QE3, which also acts as a factor supporting the dollar. The expectation for the ECB easing its policies at the next meeting also deters the “euro bulls”, especially as the euro area is now coming out with rather poor statistics. In May, the Italian inflation was at a loss of -0.1%, while the German retail sector dipped by 0.9%.
Moreover, in France consumer spending dropped by 0.3%, and Italian industrial production has not generated 2.5%. The picture is completed by the reduction in consumer lending which continued for almost two years. In general, all this data, to put it mildly, points to the significant risks of a return to a recession, and even if the ECB manages to do something at the June meeting, it may already be too late.
I continue to hold deals to sell on the Eurodollar. If the evening block of statistics in the States will be at least in line with expectations, the decline will continue with renewed vigour. Next week will be crucial, as the data on inflation in the euro zone will be released on Tuesday. In case the indicator will come out below the expected 0.7%, the euro may go into a real collapse, as with such figures the ECB will be forced to have to go into action and, as a minimum, reduce the rate.
RoboForex Analytical Department
No sharp decline in the dollar occurred only because the prevailing view is that the drawdown will be short, and that the weather factors are to blame. Indeed, because of the unprecedented cold for America, the investment activity in the beginning of the year was extremely low. In addition, the reduction in government spending on defence was a painful blow to the GDP, as well as the rising imports on the background of a strengthening dollar.
Moreover, the current figures lead us to expect very strong growth in the second quarter, which keeps the American currency from falling. The number of applications for unemployment benefits fell to 300k - one of the minimum values in recent time. Also the service PMI and the factory orders indicator showed good growth, which generally allows the market to specifically focus on the current positivity.
This positive nature of current statistics would allow the Fed to keep up the pace of reduction in QE3, which also acts as a factor supporting the dollar. The expectation for the ECB easing its policies at the next meeting also deters the “euro bulls”, especially as the euro area is now coming out with rather poor statistics. In May, the Italian inflation was at a loss of -0.1%, while the German retail sector dipped by 0.9%.
Moreover, in France consumer spending dropped by 0.3%, and Italian industrial production has not generated 2.5%. The picture is completed by the reduction in consumer lending which continued for almost two years. In general, all this data, to put it mildly, points to the significant risks of a return to a recession, and even if the ECB manages to do something at the June meeting, it may already be too late.
I continue to hold deals to sell on the Eurodollar. If the evening block of statistics in the States will be at least in line with expectations, the decline will continue with renewed vigour. Next week will be crucial, as the data on inflation in the euro zone will be released on Tuesday. In case the indicator will come out below the expected 0.7%, the euro may go into a real collapse, as with such figures the ECB will be forced to have to go into action and, as a minimum, reduce the rate.
RoboForex Analytical Department
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Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex bears no responsibility for trading results based on trading recommendations described in these analytical reviews.