First quarter real GDP growth came in this morning at 3.2%, surpassing expectations of 2.3%. Nevertheless, the dollar has ticked lower in morning trade from its new highs made earlier in the week. This makes sense from a technical perspective, as the USD entered overbought territory yesterday after a substantial run-up over the last 4 sessions. Friday morning, the dollar is trading 30 ticks off its weekly high, but will likely be supported in the short term by strong GDP growth and lack of competition from other developed economies. However, we’re still of the opinion that the days of the bull run in the USD are numbered. The Fed has pivoted from hawkish to dovish over the last few months, and there is reason to believe more dovishness will blossom throughout the year as there are still talks of rate cuts down the line.

A dovish Fed is bearish for the USD. Recently, the dollar has been winning by default, as foreign currencies trade against the dollar in the global market. With the dollar reaching new highs, and pulling back despite impressive economic data, there is reason to believe foreign currencies are in a bottoming process and it is apparent on their charts. For example, the yen has held in its consolidation pattern this week as the dollar surged higher, and it is now trading near its weekly highs, despite dovishness from the BOJ this week. The euro also stands to benefit from a downfall in the dollar – as the exit situation falls into the background – and it is currently trading in oversold territory. We are seeing an upward reversal in the euro Friday morning despite better than expected US GDP numbers; it appears a beat was already priced into currency markets. 

Japanese Yen Jun ’19 Daily Chart

Japanese Yen Jun '19 Daily Chart

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John Caruso

Senior Market Strategist
Follow John on Twitter @JCarusoRJO. John began his career at Wilshire Quinn Capital, a Wealth Management Firm based out of Los Angeles, California. John made his move to the commodity industry at the end of 2005, and began his path at Lind Waldock, at the time the largest retail brokerage division worldwide. John did his undergraduate work at Robert Morris University in Pennsylvania from 1999-2003, where he was a 4 year varsity basketball letterman.  A self-professed “Macro Trader”, John uses a multi-factor fundamental and “quantamental” trading model in distinguishing market cycles based upon the accelerations or decelerations of growth and inflation metrics. His technical and quantitative approach is heavily reliant upon trend and market range analysis via a custom built standard deviation system in helping him make probability-based market decisions. John is an avid reader of all things pertaining to finance, and behavioral economics. Click here to sign-up for John Caruso's Trading Coach Insights. Daily information and insight on all futures marketsin ranging from metals to equities.
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