A Warning Sign for the Dollar Bulls

The US dollar got the news it needed but the market wasn't impressed, that could be an early warning sign. The Canadian dollar was the top performer while the euro lagged. The Asia-Pacific calendar is quiet after a busy week.  Our Premium trades include EURGBP, GBPCAD and USDCAD ahead of tomorrow's Canada CPI figures.

The shock of the day came with the Philly Fed rising to the highest since 1993. The index hit 40.8 compared to 18.5 expected – an 8.9 standard deviation miss.

Earlier, US CPI rose 1.7% y/y compared to 1.6% y/y expected. At the same time, existing home sales rose to 5.26m compared to the 5.15m consensus.

In every case, the US dollar kneejerked 20-50 pips higher but in every case the gains quickly evaporated. When an asset can't rally on good news, what will make it go higher?

The dollar has been hit by profit-taking on successive Fridays so some short-term caution is warranted but ultimately, the dollar bull market is showing no signs of slowing so dips will be buying opportunities at some point or another.

Another source of concern is in bonds as yields bleed lower. US 10-year yields hit 2.30% before recovering to 2.33%. A break of the 2.27% November low may cause some dollar concerns.

Technically, USD/JPY and EUR/JPY finished close to flat after hitting fresh cycle highs. The daily candlestick patterns may be an early signal of a falling star formation.

Focus remains on EUR/CHF after Zurbrugg affirmed the central bank will defend the floor with utmost determination. That led to another short-term bump but it's challenging to envision a more-lasting rally at least until after the Nov 30 referendum.

Looking ahead, there is very little on the Asia-Pacific (or US) calendar in the day ahead so watch out for some minor position squaring.