Dollar Extends Decline on Weak Data

Dollar extends decline on a string of weaker than expected data in early US session. Industrial production in US dropped by 0.5% in Jan, much weaker than expectation of 0.2% rise. Capacity utilization also fell to 81.2% from 81.8%. Jobless claim surged to 357k as winter storms in the Midwest and Northeast caused more unemployment. TICS recorded a net capital outflow of $11b in Dec, which was the first net sell-off since June 2005. This is much worse than expectation of $70b and prior $70.5b net inflow. Though, NY Fed’s Empire State Index surged to 24.4 in Feb, completely reversing last months’ sharp decline from 22 to 9.1 and much higher than expectation of 10.6.

Earlier today, Sterling was hammered after much weaker than expected retail sales data which dropped 1.8% mom in Jan, the sharpest fall since 2003, dragging yoy growth to 3.3%. This is much lower than expectation of 0.2% mom and 5.4% yoy rise. One more thing to note is that the implied price deflator was -0.4% yoy in January, as compared to +0.1% in the Dec. All in all, the report suggested that pre-release surveys conducted by the British Retail Consortium and the Confederation of British Industry were over-optimistic.


Daily Pivots: (S1) 1.3052; (P) 1.3101; (R1) 1.3178; More

After mild sideway consolidation, EUR/USD’s rise from 1.2939 resumes in early US session and is now pressing mentioned 61.8% retracement of 1.3364 to 1.2865 at 1.3173. At this point, intraday bias remains on the upside as long as EUR/USD stays above 1.3116 minor support. Break of 1.3173 fibo resistance will encourage further rise to 1.3296 resistance. Meanwhile, touching of 1.3116 will turn intraday outlook consolidative first. But downside should be contained above 1.3022 support and bring rally resumption.

In the bigger picture, decisive break of 1.3052/57 cluster resistance (38.2% retracement of 1.3364 to 1.2867 at 1.3057) indicates that the whole decline from 1.3364 has already completed at 1.2865. Also, it saves the case that medium term up trend from 1.1639 is still in progress with EUR/USD kept inside the medium term rising channel (lower channel at 1.2793 now). Break of 1.3296 resistance will indicate the rise from 1.2483 has possibly resumed and EUR/USD could make a new high above 1.3364 before finally making a top.

However, with bearish divergence condition in weekly MACD and RSI, upside of the current rise could be limited in the medium term. BUt a break below 1.2939 is needed to reinitiate short term bearishness first. Break below 1.2865 again will confirm that the whole fall from 1.3364 has resumed. In such case, focus will then be switched back to 1.2760 support and 1.2483 cluster support (50% retracement of 1.1639 to 1.3364 at 1.2502) again.

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