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Dollar index bounces off $94.60 on worsening sentiment data

It's a long weekend in the USA, so some traders may be taking profits ahead of what could be a tumultuous weekend with no agreement reached between Russia and NATO. Although the sentiment in the US is terrible, the greenback traders found value and started buying again.

Market Wrap

The US dollar index bounced today despite the worsening US Consumer sentiment and retail spending. The DXY tested the $94.60, which had been prior resistance and is now acting as support. Technically the 4-hour chart is bearish with developing bearish momentum, so all eyes will be on whether the price action can cut through the previous level of support at $95.50 again.

According to the US Census Bureau's report published this afternoon, US retail and foodservice sales fell 1.9% in December to $626.8 billion and came in under market expectations. Year-over-year, sales increased 16.9%. As compared to last month, retail sales fell by 2.1% but increased by 14.4% when compared to the same period last year. Gas stations' operations increased by 41.0% year-on-year, and those of food services and drinking places by 41.3%.

The University of Michigan reported on Friday that consumer confidence declined in January compared with the previous month. The Consumer Sentiment Index declined by 2.5% monthly, and by 12.9% compared with January 2021.

The Current Economic Conditions Index was 73.2, down 1.3% from December and 15.6% from last year. Consumer Expectations sank to 65.9, a 3.5% monthly decline and a 10.9% annual decline. The Delta and Omicron variants certainly contributed to this downward shift, but so did an escalating inflation rate.

In 2021, Germany's GDP grew by 2.7%, according to the country's statistical agency Destatis.

Covid-19 infection rates and the associated preventive measures also in 2021 hampered economic growth. As a result of the ongoing pandemic situation, continued delivery bottlenecks, and material shortages, the German economy managed to recover from the sharp fall last year, although it has not yet reached its pre-crisis performance level again.

Despite the good news out of Germany, the EURUSD declined as rising Covid-19 infections, European gas flows, the situation in Ukraine and a stronger US dollar weigh on the single currency.

Brent is up 1.58% today but the last few hours have seen a reasonable amount of sell orders step in. This could be traders taking profits ahead of the US long weekend due to the Martin Luther King bank holiday.

Earlier today I outlined a possible technical setup for a short, which needed the 1.2450 level for USDCAD to hold, so the price could test the old support as new resistance up at 1.2620. It just so happens that despite what had been a bull run in the Brent all week and precipitates fall in the USDCAD this week, my idea is starting to play out.


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