As we await the European session, the euro continues to rise against the greenback, with the EURUSD pair currently trading at 1.2383 (+0.23%). Consequently, the US dollar index is continuing its decline from yesterday and is now trading at 89.38 (-0.25%).
It’s interesting to note that the dollar index has been steadily declining for a few months in a row now, despite the fact that the US economy has recently been growing at a decent rate. GDP went up by 2.3% in 2017 and year on year growth for the first quarter of 2018 is expected to come out at 2.8%. In my opinion, this current trend is down to the fact that investors don’t trust the Trump Administration.
Under Trump’s presidency, the US is taking a more isolationist stance both in world politics and economics; they’ve imposed sanctions on Russia and China, withdrawn from the Transpacific Partnership agreement, and rejected the idea of a free trade zone with the European Union, all the while taking a hardline stance in their talks with Canada and Mexico on NAFTA. All this isolationism is taking place amid rising US government debt, which according to usdebtclock.org, is currently at 20.6tn USD and rising. This increasing reliance on debt was the reason cited by Chinese credit rating agency Dagong for downgrading the USA’s rating from A- to BBB+ in mid-January this year. I believe that all these factors together will continue to weigh down on the dollar in the long term.
Looking at the short term, anyone trading on the currency market today should take note of the Eurozone’s GDP figures for the 4th quarter of 2017, which are set to be published today at 13:00 (GMT+3). In addition, US data on retail sales and consumer inflation for January are due to be published at 16:30 (GMT+3).
I think that the US data could play a very important role in the EURUSD pair’s dynamics today. Currently, on the hourly timeframe, the EURUSD pair is testing the neckline of the double top formation around the 1.2380 mark:
If US data comes out worse than expected, I think that the EURUSD pair will continue its upwards dynamic and will make an approach towards the “double top” levels (scenario S1 on the chart), i.e. to around 1.2480 – 1.2520. However, if these figures are positive, the pair will test the neckline before reversing downwards and moving towards the most recent low (S2 on the chart) around 1.2190 – 1.2290.
If you ask me, any data that suggests annual US GDP growth of 2% or more is good for the dollar. Anything lower than 2% is bad for the dollar.