Upbeat US data today could reignite the USD strength

Fundamental View

Yesterday saw a brief pullback in the EURUSD. With plenty of profit taking as the Dollar index hit 100, the EURUSD lifted from its lows and outperforming the pound which remained at its low. Overnight we saw this currency pair break the 1.4900 handle with conviction and we have only this morning tested the 1.4800 handle with a brief excursion below this level before closing higher. The push higher in the EURUSD reached its technical apex with the release of Retail Sales far below expectations with a reading of -0.6% against the expected 0.3%. This was, to many, a probable outcome as the spending over the Christmas and January sales period dies down. Many analysts who missed out on this have attributed the fall in spending to the bad weather, as usual. We did however see positive figures released as part of the weekly jobs report; Initial Jobless Claims posted a reading of 289,000 against the expected 305k, a positive omen as we return to readings below the 300,000 unofficial target. This capped the EURUSD move higher just below the 1.0700 handle as some traders priced in worse-than-expected employment to continue.

Today’s View

This morning we saw the final inflation numbers from Italy, posting a reading of -0.1% for the annual reading, printing 0.4% for the monthly. This beat last month’s final reading of 0.3% but as this is the final print the weighting of this number is largely priced in, the EURUSD didn’t see too much of an effect from this. We also saw a rate cut from the Russian Central Bank but 100 basis points but many traders were pricing in a larger cut; ultimately there was not much of an effect in the Ruble. Looking ahead we have US PPI Final Demand for February at 1230GMT, expected at 0.30%. We also have the University of Michigan Sentiment index at 1400 GMT, expected at 95.5. Any results outside the range on these figures will be clearly visible on the dollar, perhaps even reigniting the appetite for dollar long positions into the weekend. We are fairly confident of a bullish extension in the dollar but will be looking for conservative entries.