Dollar down but not out as CPI retail sales disappoint

As we pointed out the possibility in our earlier report on gold, today’s US economic numbers have disappointed the somewhat optimistic expectations. As a reminder, CPI rose ‘only’ 0.2% instead of 0.3%, core CPI 0.1% instead of 0.2% and retail sales 0.4% rather than 0.6% expected. Consequently, the odds for a June rate rise fell back and the dollar weakened across the board. But the numbers weren’t bad by any means – they were just not as good as analysts’ expectations. For that reason, I don’t think this was a game changer and the Fed therefore still remains on course to raise interest rates next month. The dollar should be able to make a comeback, especially against currencies where the central bank is still dovish. If not today, then probably early next week.

However, the Dollar Index is still in no man’s land in terms of its location on the chart. For that reason, we cannot be overly bullish or bearish at this stage. As can be seen, it has spent several days in consolidation around 98.80 to 99.50, oscillating around the still-rising 200-day moving average at 99.30. Crucially, the broken bullish trend line hasn’t been reclaimed and the backside of it has turned into resistance. But if the DXY were to re-establish the broken trend by climbing back above the 100 level then this would be rather bullish. Until and unless that happens, the dollar bulls may want to proceed with extra care. Yet at the same time, the dollar bears cannot exactly claim victory.

In other words, it is a finely balanced market for the dollar. So, trade the dollar from one level to the next and move on. If you are swing trader, you may wish to consider FX crosses like the GBP/JPY or EUR/JPY, both of which have been trending higher in recent times.

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