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Dollar Darts Ahead, Article 50 Next

Bull markets rarely end in collapse and the US dollar proved that on Tuesday as it roared back to life. The Australian dollar was the top performer while the pound lagged. Japanese retail sales are up next but the big story in the day ahead will be Article 50. After closing both EURCAD and EURAUD trades at a profit, one of pairs will be re-opened later ahead of the Asia Wednesday session. More on the charts rationale in the Premium video below.

We wrote yesterday about how the US dollar was at a crossroads. On Monday, it tumbled early but instead of continuing to wilt, it bounced and that underscored the indecision in the market.

Today, strong economic data and more signs of renewed political resolve gave the dollar a lift. As the gains mounted, the US dollar erased all of Monday’s losses to leave it virtually flat on the week.

What had looked like a breakout in EUR/USD is now a trade wracked with questions.

What’s clear is that the US dollar won’t seriously stumble so long as economic data is improving. On Tuesday, US consumer confidence jumped to 125.6 compared to 114.0 expected; that’s the best in 17 years. The Richmond Fed also hit the best since 2010.

The Fed’s Fischer made an appearance but offered little we didn’t know. He said two more hikes this year was his baseline and that the risks were balanced.

Two things will keep markets off balance in the days ahead. The first is looming quarter end and Japanese fiscal year end. The second is the UK announcement due on Wednesday.

In theory, the announcement is 100% expected and it should be fully priced in. May will likely make the announcement in parliament at noon and the letter will be delivered to Donald Tusk 30 minutes later.

The danger is that GBP flows accelerate after the announcement. In particular, the net cable position is at the most-short on record and that leaves the pair vulnerable to a squeeze.

Before May takes the spotlight, the economic data to watch in Asia-Pacific trading comes at 2350GMT when Japanese retail is released. The BOJ is showing no signs of easing off the gas pedal but a reading better than the +0.3% m/m expected would be a small step in that direction (albeit still not a JPY mover).

Ashraf Laidi
Ashraf Laidihttp://ashraflaidi.com/
Ashraf Laidi is an independent strategist and trader, founder of Intermarket Strategy Ltd and author of "Currency Trading & Intermarket Analysis". He is the former chief global strategist at City Index / FX Solutions, where he focused on foreign exchange and global macro developments pertaining to central bank policies, sovereign debt and intermarket dynamics. Ashraf had also served as Chief Strategist at CMC Markets, where he headed a global team of analysts and led seminars and trainings in four continents. His insights on currencies and commodities won him several #1 rankings with FXWeek and Reuters. Prior to CMC Markets, Laidi monitored the performance of a multi-FX portfolio at the United Nations, assessed sovereign and project investment risk with Hagler Bailly and the World Bank, and analyzed emerging market bonds at Reuters. Laidi also created the first 24-hour currency web site for traders and researchers alike on the eve of the creation of the euro. Laidi's analysis of currency markets stand out based on his distinct style in bridging the fundamental and technical aspects of the markets. Laidi regularly appears on CNBC TV (US, Europe, Arabia and Asia/Pacific), Bloomberg TV (US, Asia/Pacific, France and Spain), BNN, PBSs Nightly Business Report, and BBC. His insights also appear in the Financial Times, the Wall Street Journal and Barrons. He has given numerous interviews and lectures in Arabic, French, and to audiences spanning from Canada, Central America and Asia/Pacific.

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