USD Is Not Dead As Buyers Come Back on Mixed Data

EUR/USD closed the week below 1.10 after a strong reversal on Friday as the USD surged higher on bullish events

Skerdian Meta•Monday, April 17, 2023•2 min read

The USD has been beaten up since October last year, with a pause in February when we saw a comeback as the data showed a rebound in the US economy. EUR/USD surged above 1.10 and was heading for 1.11 but reversed on Friday after some events which were bullish for the USD and this pair closed the week below 1.10.

It is not advisable to be short on the US dollar for a long period and especially when FED members are speaking. On Friday Governor Christopher Waller suggested that interest rates may be raised, potentially more than once. Although he represents the hawkish side at the FED.

The retail sales report for March was weak, but the following University of Michigan consumer sentiment indicator showed an improvement this month, as consumer inflation falls. Earlier this week, the CPI (consumer price index) and PPI (producer price index) showed a cool-off, which is negative for the USD as it reduces the chances of the FED hiking further beyond March. Although the inflation expectations for the next year saw a jump to 4.6% from 3.6% and with banks’ concerns falling behind, there is a possibility of more interest rate hikes. US bank earnings have been strong recently.

However, with more hikes, there is also an increased likelihood of overdoing it, which could weigh on risk assets. Overall, it seems like an easy decision for the FED to raise interest rates again by 25 bps in next month’s meeting, although there is still some US data left to come, starting with the Empire State Manufacturing Index which is expected to show some improvement this month.

This move is already priced above 80% in FED funds, so it should not come as a surprise. Beyond that, the decision will depend on incoming economic data, but the argument for a pause beyond that is strong. However, it is unlikely that the FOMC will be explicit about it in the next meeting.

Regardless, concerns about higher rates and slower global growth are still valid for the US dollar, as seen in last Friday’s price action. This led to a reversal in what could have been a bullish breakout in the USD. Although it remains to be seen where it will head this week. EUR/USD closed below 1.10 last week, although it was a close call, so both sides are at risk right now.

EUR/USD Live Chart

EUR/USD

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Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.