The US dollar has failed to make any significant tailwinds to the upside in the recent days despite a spate of strong US economic data releases in the past four days that suggest the US economy roared back to life in March. Since a recent high of 93.44 printed on 31 March on the US Dollar Index, it has declined by -2.08% to record a low of 91.49 yesterday, 15 April which indicates broad based USD weakness against the major currencies in general.
Consumer price index for March where core inflation rate in the US rose 1.6% year-on-year that beat consensus estimate of 1.5% and surpassed previous months reading of 1.3% and 1.4% for February and January respectively. In addition, the retail sales for March blew consensus estimate of 5.9% where it increased by 9.8% month-on-month over -2.7% recorded for February, its strongest pace of growth since May 2020. Also, weekly initial jobless claims decreased to 576,000 from 769,000, its lowest 4-week average reading since March 2020 when the pandemic started.
Hence, it is likely that such positive US data have already been discounted in the foreign exchange market as most media reports published at the start of April have indicated a strong economic recovery for March. In fact, the US 10-year Treasury yield has already started to price in such economic recovery optimism much earlier where it rose by + 77 basis points (bps) from 27 January low of 1.00% to a high of 1.77% printed on 31 March, its steepest pace of increase in terms of bps versus its previous significant up move recorded from 4 August 2020 low to 12 January 2021 high. Also from a technical analysis perspective, the daily relative strength index (RSI) of the US 10-year Treasury yield has reached an extreme overbought level of 78% on 25 February and exhibited a bearish divergence signal thereafter which increases the odds of a pull-back after a sharp rally in place since 27 January low of 1.00%.
Secondly, net short speculative positioning on the US Dollar Index has declined by $6.10 billion in the week ended 6 April from $8.22 billion reported in the previous week according to data release from the Commodity Futures Trading Commission. On the average, the USD net shorts position seems to be now worth around 2% of open interest versus a peak of 19% seen on 19 January. Hence from a contrary opinion perspective, a fall in net short speculative positioning (unwinding of previous elevated open short positions in the US dollar) is unlikely to be able to produce any potential significant short squeeze on existing short US dollar positions at this juncture, hence such effect muted or cancelled out the US dollar positive drivers from the recent rosy US economic data releases.
Chart of the day – USD/JPY
USD/JPY potential failure bullish breakout if weekly close below 109.85
Source: CMC Markets
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