The U.S. dollar was pummeled and continued its recent two-week slide after GDP for the first quarter was revised to -2.9%, much worse than the expected -1.7% forecast. Core Durable goods also had a dismal reading at -0.1% vs an expected climb of 0.4%. The knee jerk reaction was typical, as we saw a weakening dollar as expectations for the tapering pace to slow down and easy money to remain in place a little longer.
This was one of the worse readings for Q1 since 2009, but traders ultimately will focus more so on the recent improving readings that we have seen for jobless claims, consumer confidence, industrial production and hours worked. This is why we, may not seem significant follow through on this weakness.
Since last October, the Dollar Index (DXC) has stabilized around the 79.00 handle and while the current slide appears poised to break down below all the key three (SMA), traders should not be surprised if the 79.00 level holds. Price may form a bullish Gartley pattern around the 79.80 level. If see a trend line break to the upside, bullish momentum may tes the 81.60 zone.
If 79.00 is breached, key support will come from 78.30, which is the 127.2% Fibonacci expansion level of the 2014 low to high move.
The trade: Buy Dollar Index at 79.80 with a stop loss at 78.95 and a take profit at 81.50. The Risk/Reward Ratio is 1:2.
Edward J. Moya
WorldWideMarkets Online Trading