Yesterday while the securities markets were forging ahead to new high ground the Euro faltered, perhaps signaling a decoupling of the tidy relationship between the S&P and the dollar. For months now, the strong stocks had meant a weaker dollar, as those previously fearful of the financial melt down, moved their money out of safety instruments such as US Treasuries, back into equities. Again the Euro balked, as it worked it's way back to the 1.50 handle. It now looks like we are confined to a trading range between 1.47 and 1.5050.
This morning it was announced that the Euro trade balance was a +6.8B versus an expected -0.9B, and +2.2B in the previous period. These trade balance numbers dispute the claims of those that the strong Euro is hurting the recovery. In the US the PPI was 0.3% lass than the expected 0.6% and -0.6% in the year ago period. Later, the US factory out put numbers came in worse than expected at 0.1% versus and anticipated 0.4%, perhaps confirming comments by the IMF managing director that the recovery may be sluggish.
We next had a Treasury International Report, or TIC report which measure capital money flows. Surprisingly, this report showed a larger than expected inflow of investments into the US, 40.7B versus 27.3B expected and 34.2B in the previous period. Total inflow was 133.5B during September, the reporting month. With all the conversation about the dollar being the lender for the carry trade, these numbers dispute that theory as inflows of capital far exceed the outflows. We do know that the huge Treasury auctions of notes and bonds has attracted large off shore participation, so a combination of a discounted dollar and attractive rates may have stimulated the capital inflow.
Despite equities retreating only minor amounts so far, the Euro acts like it wants to test the bottom part of the range.
We have felt that the 1.50 level has been something of a lid on the market, and markets that cannot go up often go down. Perhaps the pair has gotten a little ahead of itself, as the RSI on the 4H chart has plunged, and the MACD has headed south. Try sell a minor recovery to the 1.4850 level or so and see if we can trade under 1.48.