The US dollar came under renewed pressure this week, but the Greenback isn’t dead yet.
US dollar weekly chart
As the daily chart above indicates, the US dollar index looks set for a negative week ahead of Friday’s Non-Farm Payrolls, but this merely brings the trend back to the 14 period moving average. The April shower has abated with the last two weeks in May bringing the dollar roaring back.
Can it last?
A key driver of dollar weakness this week has been a surge in confidence in the euro as yet another Greek debt deadline approaches.
EUR/USD daily chart
The euro has been on the back foot since the middle of May, with a rapid surge over the last three days. This revival has coincided with renewed confidence in a deal for Greece. Throughout the latest round of negotiations, it has been the Greek side looking to gild the lily. Yet this week, we have seen both sides issue positive statements, especially from the creditors.
Substance has still been lacking and we are still some way from a concrete agreement, but markets have liked the tone of recent press releases and strategic leaks. The EUR/USD has surged over 3% in three days, with the EUR/JPY not far behind.
However, the longer term prognosis for Greece is still uncertain, especially since the latest negotiations revolve around debt payments alone. The tricky issue of paying civil servant wages is being kicked into the long grass.
Another area of dollar strength is the ongoing weakness in oil prices. On Thursday, OPEC opted to keep production at current levels despite the pressure this is creating for some oil producing nations. The cartel are hoping to nullify the threat posed by US shale gas deposits and absorb some short term pain to achieve longer term gains.
Conoco Phillips came out in a robust defence of shale gas this week, a move that added to the pressure on oil prices.
Crude oil weekly
With oil prices moving in inverse proportion to the dollar, the recent crude weakness could bode well for dollar upside.
The IMF warned this week that the FOMC may have to delay a rate hike until 2016, but this already seems to be accounted for by markets. True – US rates may rise later than previously expected, but these expectations are still at least a year ahead of other regions especially Europe.
After a good run for the euro, we could see renewed pressure over the coming weeks, especially if Friday’s job numbers come in as expected.
A good way to play this is a HIGHER trade predicting that the EUR/USD will close BELOW 1.1200 in 14 days time for a potential return of 137%. Or put another way, betting that the EUR/USD will close below 1.1200 on the 18th of June could return £23.68 from a £10 stake.
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