Signs of growing dollar strength are increasingly evident. USD/JPY is trading above 110 now and if I’m right and this move sees the currency pair trade into the 130s, Japanese stocks just might be a steal at these levels! That said, it’s the chart for EUR/USD which looks very illustrative to me. Look at how it’s traded through support in the last few days.
This week we’ve seen weaker than expected inflation in the UK, but better than expected British retail sales; much better Q1 GDP growth data in Japan as well as better than forecast machinery orders data also in Japan. Even consumer confidence in the US is improving relative to previous data. You have to say the good news has outweighed the bad, and it’s pertinent because of what the last FOMC minutes reveal. It is clear that policy makers will be prepared to take hawkish action in June if the data supports it. Ok so most of the data I’ve mentioned hasn’t been for the US, and it’s reasonable to assume that the Fed will be far more focussed on their domestic economy. But let’s not forget that the externalities have been a concern for the FOMC in recent meetings. It does look like that’s going to be less of a concern now, and the US economy has been pretty solid for quite some time. The bottom line is that I think stronger US data will give the dollar a boost between now and the next FOMC meeting in June.
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