US Dollar showing signs of a normal pullback

Outlook:

Today the bond market closes early and all markets are closed on Monday for Memorial Day in the US. London is closed on Monday for a bank holiday, as well. We should expect falling volumes all morning and lots of position-squaring. We will not publish any reports on Monday.

We get a lot of data today, which will annoy traders yearning to leave their desks for a three-day weekend, especially urgent because spring was so late this year. First up is durables, expected to show a 1.3% drop. Then the University of Michigan consumer sentiment data, including inflation expectations. We had Feds galore, starting with Chairman Powell (in Stockholm), then a Dallas Fed conference at which speakers include Dallas Fed Kaplan, Atlanta Fed Bostic and Chicago Fed Evans. After lunch, the Baker Hughes rig count.

Probably the net outcome of all this will be fresh talk about the robustness of the US recovery. We had “synchronized” growth pretty much everywhere for the blink of an eye, but then it looked like the US was pulling ahead. Bad data can squash that perception  and draw attention anew to the incompetence in Washington. Market players do not like taking political events into consideration if they can possibly avoid it, but Trump intrudes. We all try to take his buffoonery with a grain of salt, but his disruptions still need to be considered, like the proposed tariff on imported cars this week.

And the dollar is already showing signs of a normal pullback, but when a correction comes just before a major holiday, you have to worry. One year we had a euro/dollar reversal the week of July 4 and once we had a reversal in dollar/yen over the Memorial Day week, so holidays are not to be dismissed lightly. See the daily chart of the yen. We had a corrective move upward to the 62% retracement area, and then a drop. We never know if this means the corrective upmove is over, or will hit some kind of support and the currency will rise again to test the 100% retracement, in this case, 114.74 from November 6, 2017. You can write alternative scenarios to support either forecast. We are betting on the upmove resuming, but not betting very much.

Note to Readers: In case anyone missed it, our absence for a week was due to tornadoes hitting Connecticut last Tuesday and shutting off electrical power and internet access for a full week. We will need to take another week to move to Virginia in early June. Exact dates to come.

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