Dollar Index gains momentum as high interest rates risk remains

The euro retreated after the relatively weak services PMI data from Germany and France. In Germany, the services PMI declined from 51.5 in March to 49.9 in April. This decline was below the median estimate of 50.1 and the expansion zone of 50.1. In the same period, the composite PMI declined from 57.3 to 55.8. In France, the services PMI rose from 48.2 to 50.3, slightly lower than the expected 50.4. Similarly, in Italy, the PMI declined from 48.6 to 47.3. Overall, the Eurozone’s services PMI data increased from 49.6 to 50.5. This data is notable as services is the biggest sector in Europe. Further data revealed that the producer price index (PPI) increased from 0.5% in February to 1.1% in March. 

The New Zealand dollar rose after a hawkish statement by the Reserve Bank of New Zealand (RBNZ) governor, Adrian Orr. He said that the country’s economy was recovering at a faster pace than expected but warned against complacency. He also said that the bank will likely intervene and hike interest rates to prevent the economy from overheating. The statement came a few hours after the country published strong employment numbers. The unemployment rate declined from 4.9% in the fourth quarter to 4.7% in Q1. In the same period, the participation rate rose from 70.20% to 70.40%. 

The US dollar index jumped by more than 0.50% as traders continued to focus on a statement by Janet Yellen, the Treasury Secretary. In it, she said that the Fed will likely need to gradually raise interest rates to prevent the economy from overheating. While she later walked back those claims, analysts believe that the bank will indeed change tone. Yellen is a respected economist because she was the previous Fed chair. Data released today showed that the labour market is steady as the economy continues to reopen. Data by ADP showed that the country’s private sector added more than 742,000 jobs in April after adding 517k in the previous month.

EUR/USD 

The EUR/USD pair declined to an intraday low of 1.1984, which was the lowest level since February 22. On the four-hour chart, the stock declined below the Ichimoku cloud and the short and longer term moving averages. It is also slightly above the important 50% Fibonacci retracement level while the MACD has continued to drop. Therefore, the path of the least resistance for the pair is lower. The next level to watch is 1.1970, which is along the 50% retracement level.

NZD/USD

The NZD/USD pair rose to an intraday high of 0.7171 after the hawkish statement by Adrian Orr. On the hourly chart, the pair is below the descending trendline that is shown in pink. It connects the highest swings since April 30. It is also slightly below the 38.2% retracement level. Also, the pair has formed an inverted head and shoulders pattern, which is a bullish signal. The signal and histogram of the MACD have moved above the neutral level. The pair may keep rising if it manages to move above the descending trendline.

AUD/USD

The AUD/USD pair was little changed after the relatively positive Australian building permits data. On the four-hour chart, the price is slightly above the lower side of the rectangle pattern. It is also slightly above the 61.8% Fibonacci retracement level. Also, it remains below the moving averages. The Relative Strength Index (RSI) has also been on a downward trend. Therefore, the pair may resume the downward trend so long as it is below the two moving averages.