While the recent rally in the dollar can be related to slightly negative consumer prices in the U.S. for the first time since 1955, the inverse correlation with the Dow Jones Index seems to have faded. That is welcome, since very low or slightly negative inflation numbers, hopefully not turning into secular deflation, support the stock market by raising P/E valuation and a country’s currency by securing yield income. So much for the positive development. The negative side is the later-expected inflation based on the unprecedented monetary and fiscal expansion - it would be a very hard job for any central bank to navigate the ship through a tsunami like that breaking loose once the economy recovers. The alternative of the outcome could be "stagflation" - a stalling economy accompanied by rising inflation, a true worst-case scenario for both the stock market and the currency (the present Democrat leadership in Washington is taken as an omen for that). As for the latter two cases, we are not there yet, with the incoming spring economic data, usually being seasonally buoyed, showing no sign of recovery at all. For example, yesterday’s March leading indicators receded further. For now, further strength in the USD can be expected in the near future, although we expect a consolidation phase to come first.

Below are our projected trading ranges in the major pairs for today’s trading, where we expect the strong bid tone for the USD to ease due to the overbought situation. Note today’s press conference in Washington about the Global Financial Stability Report of the IMF and the World Bank at 15:00 CET.

Intraday Market Outlook for Day Traders

EUR / USD
The pair gained back lost territory in early European trading, reinforcing that trend after very good ZEW results in Germany. Currently trading at 1.2965 after a high around 1.2990, we see some more up movement today, limited to the resistance around 1.3050, and from there a consolidation between that level and 1.2940.

GBP / USD
Cable is consolidating its lower levels in early European trading, with only weak recovery attempts. Trading now at 1.4550, we see some more recovery dynamics developing in today’s market, to 1.4640, and then renewed weakness, but not breaking the 1.4520 support.

USD / CHF
The dollar continues to hover around its highs against the Swiss franc in early European trading and is currently priced at 1.1680. We see the upper limit for today’s trading 1.1730, and the lower side of the trading range around the 1.1650 mark.

USD / JPY
After some recovery of the dollar against the yen in Asian trading, the early European market is very quiet and currently trading at 98.10. We expect a sideways market today, between the 98.30 and 97.80 levels.