The US consumer is under pressure. Consumer Confidence level fell to 89 in April, and retail sales fell by -0.3 MoM in March. And as if that weren’t enough, GDP growth missed the mark for a second consecutive quarter, with Q1 growth falling to as low as 0.5% annualized, well below expectations.
Naturally, those developments are not bringing a Fed rate hike any closer, and it leaves the Dollar widely exposed to short selling. It’s the catch-up game, where Dollar peers such as the Euro, Yen, and Aussie are gaining lost ground. The relative advantage of the US economy is narrowing, and the prospect of a tightening cycle from the Fed seems even more remote.
This isn’t the first time the Dollar has been hit by the catch-up game. Here’s how the game plays out: The Dollar turns weaker, shaving its value by several percentage points only to come back stronger in the end as the US economy regains momentum. That’s why one should tread lightly before pouncing on a Dollar short. After a series of disappointments, the chances of an upward surprise in US data is much greater. There’s a very real chance that shorting the Dollar at this stage, after a 6.5% correction, will be too late. [Read more...]