The US Dollar Gains Ground

Retail Sales, Weak EU GDP Forecast Boost Dollar

The Dollar Index has a number of positive factors going for it this week, including better than expected retail sales, a negative EU GDP forecast, and turbulence in the JGB market. The better than expected retail sales data could result in the FOMC curbing it's bond buyback program. If that happens, rates could rise, as could demand for greenbacks. On the flip side, the Japanese Yen could attract more interest due to extremely technically oversold conditions. Net shorts by hedge funds have risen to levels that could be interpreted as oversold. Some traders may also tread lightly ahead of Eurozone and German GDP data, which will be released tomorrow.

Fundamentals

The Dollar Index has retreated slightly, after testing late March highs after April retail sales figures showed slight growth. Retail sales, which account for 30% of consumer spending, decreased by 0.5% in March, and the consensus estimate was another decrease of 0.3% in April. The 0.1% increase, while not earth shattering, did beat the street and show signs of growth. The Euro, which has a 57.6% weight in the Dollar Index calculation, comes into the week on a bearish note, as GDP is forecast to show economic contraction across the Eurozone for the sixth consecutive quarter. Currency traders are looking at markets heading in opposite directions. The Japanese Yen, which has the second highest weight in the Dollar Index at 13.6%, remains in a free-fall. Japanese Government Bonds narrowly avoided their third consecutive trading halt in as many sessions, as some traders continue to dump them in favor of stocks.

Technical Notes

Turning to the chart, we see the June Dollar index closing just below the late March high close of 83.411. In order for the market to regain its upward momentum, prices need to cross through this level or risk getting stuck in range-bound trading. On the downside, prices must maintain the recent low close of 81.522 or risk falling into the high 79's. The RSI is currently giving neutral readings, suggesting the market could potentially move higher without much technical selling pressure. Momentum is moving higher at a more rapid pace than RSI, creating slight bullish divergence.