The dollar bull run continues to take a pause for breath and the danger now is that a broader correction could ensue squeezing what is a very crowded trade. Even the Aussie and Kiwi are staging recoveries that will have bears thinking whether it’s time to exit a heavily shorted trade as overnight the Governor of the RBNZ looked to soften his dovish position after moving to a “neutral” stance but keeping the base rate on hold and suggested any rate cut would come a long time down the line. So when NZDUSD was breaking below 0.7200 only yesterday, it is now back at 0.7425 at the time of writing.
This dollar weakness has allowed EURUSD to recover to back above 1.1400 (1.1470 at the time of writing) and pushed GBPUSD to 1.5150, but it’s not just the dollar weakness that has allowed these currencies to recover ground as the economic data so far this week has suggested that lower oil prices is feeding through to sentiment. Manufacturing surveys have broadly beaten expectations and today it is the turn of the services PMI data with the Eurozone figure due to rise from 51.6 to 52.3 and the UK’s number due to rise from 55.8 to 56.3. Better numbers here could cause the dollar squeeze to continue and we could see 1.1500 in EURUSD and 1.5200 in GBPUSD (which was tested and rejected yesterday) before long. There is also Eurozone retail sales to keep an eye out for this morning and one must not ignore continued negotiations between Greece and the Troika as their Prime Minister meets with the EU Commission’s President today. Later from the US keep an eye out for the monthly ADP private payrolls and ISM non-manufacturing figures as these have the potential to reverse the dollar recent moves lower.