Dollar Rout Stalls, But Can It Be Stopped?

The dollar slump stabilized on profit taking ahead of the long weekend and a soft Philly Fed hurt sentiment. Flows will dominate as trading slows to a trickle through the Easter holidays.

USD took another beating in Asia and Europe on Thursday and the Dollar Index fell below the 2009 lows. The final flush came after strong UK retail sales, but as London traders headed to the exits for the long weekend USD shorts began to take profits. Cable fell to 1.6523 after hitting a high of 1.6600. EUR/USD fell to 1.4553 from 1.4648. USD/CAD closed higher at 0.9526 after hitting a three-year low of 0.9454. The dollar wasnt able to make any headway against the yen and closed at the lowest levels of the month.

The Philly Fed slumped to 18.5 from 43.6 (Exp: 36.5) in the worst reading since October. U.S. manufacturing has been a pillar of strength during the recovery and this is the first sign of weakness. But last weeks Empire Fed beat expectations and with the dollar so weak, its likely an aberration. Next weeks data on durable goods (Wed) and the Chicago Fed (Thurs) now grows in importance. Initial jobless claims which disappointed again with a 403K reading compared to the 390K consensus. The house price index also fell 1.6% in the month (exp: -0.2%). Earnings were mixed but note that GEs industrial arm was a disappointment pointing to softer global spending/growth at the margins.

ASIA PACIFIC PREVIEW

Most markets are now closed and typically this means flat trading in Asia. With the yen rallying once again Thursday, however, there is a risk that policymakers try to talk down JPY during thin trading. The same risk applies to Monday which will be quiet with Australia closed for ANZAC day and several other countries closed for Easter Monday.

Expect to see the DOLLAR RHETORIC HEATING UP in the days ahead after Americans are blasted with headlines lamenting the dollar over the long weekend. This could boost the USD but we cant imagine savvy traders doing anything but selling the bounce. The only thing able to prompt dollar buying at the moment is risk aversion. Even then, the dollar comes in third place to the yen and Swiss franc. Traders are also getting more aggressive in using those opportunities to establish short USD positions. We cant help but speculate about what can stop the falling U.S. dollar?

The Treasury Dept. is entrusted with protecting the value of the buck but it has neglected this responsibility for nearly a decade. There is almost nothing now that Geithner can say to spark a rally. Obama is focused on jobs and the weak USD is boosting manufacturing. The Fed thinks along the same lines and hawkish hopes for Wednesdays meeting are a pipe dream. So who is going to take action? The dollars best (only?) hope may be that leaders elsewhere decide to start selling their currencies. Japan is already back in the intervention zone while leaders in New Zealand, Canada and Australia are likely drawing up contingency plans. Otherwise, we cant see any reason in the week ahead to be buying dollars.

By AB -AshrafLaid.com Staff