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USDOLLAR Pivots to Key Level as EUR/USD, GBP/USD Slides Continue

USDOLLAR Pivots to Key Level as EUR/USD, GBP/USD Slides Continue

2014-07-25 10:40:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Talking Points:

- USDOLLAR nearing key resistance, no thanks to AUD or JPY.

- EURUSD, GBPUSD leading greenback advances.

- July forex seasonals in QE era still working against greenback, however.

US economic data improved throughout the month of July, although in recent days the momentum has come to a bit of a standstill and started to pullback. This is reflected by the Citi Economic Surprise Index, which at -26.0 is now the weakest since early-May.

The US economy has stabilized, however, not necessarily plunged into a new era of disappointment: the three-month differential on the CESI-USD (July 24 reading minus April 24 reading) is at +1.1, off the July peak of +32.6. It's no surprise then that as the US economy has shuffled sideways, the USDOLLAR Index has moved in tandem, very little over the last three months as well.

High importance US economic data such as today's release of the June Durable Goods Orders report, have the innate potential to jumpstart a move in this low volatility environment. Considering where the USDOLLAR Index is trading, a high event catalyst couldn't be coming at a more opportune time.

When trading in and out of the US Dollar, our preference is to stay away from AUDUSD and USDJPY, as the two pairs have moved sideways if nowhere for the past several weeks (about a month in AUDUSD, about five months in USDJPY).

Instead, as discussed earlier this week (see: Managing USD Expectations with EUR/USD, USD/CAD (but not USD/JPY)), our preference is to stick to the European currencies as they have been the laggards (an extension of StrongWeak analysis). See the technical video above for a look at USDOLLAR, EURUSD, and GBPUSD setups.

Read more: BoE Sings Dovish Tune - How Threatened are GBP Longs?

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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