3 reasons to sell the dollar todayNot so often there are days when you can say with almost 100% certainty that this is a day of great movement. So today is just one of those days. Too many crucial things happen on this Friday.
First, the US tariffs against China ($ 34 billion) since today are reality. China, in its turn, introduces counter tariffs. In fact, this means war. Especially because Europeans are on the line, and the rest of the world as well. And although the issue of applying the protectionist foreign economic policy is ambiguous and has not quite obvious effects, nevertheless, most experts agree that the world economy will lose from this. And it can lose so seriously that a new world crisis will begin. The fact that the shares in Asia have updated the nine-month lows on the eve of July 6 suggest that these opinions did not arise from scratch.
Secondly, today's statistics on the US labor market can quite unpleasantly surprise the markets. That is, we do not expect devastating data (there was simply no serious reason for this during the reporting period), but the markets are already so spoiled by excellent data from US that even a small negative deviation can well provoke a sell-off of the dollar. The United States is in fact trapped in the "ideal". Because it's impossible to stamp records always. Sooner or later, Akela will miss. The unemployment rate has reached the level of 3.8%. The occasion for optimism. So, it is so, but if you recall the course of macroeconomics, then there is such a thing as "natural unemployment". That is, the level of the labor supply, which provides an opportunity for further economic growth, since 100% deprivation deprives the economy of opportunities for growth (at least extensive). Estimates of the level of natural unemployment vary, but the consensus is somewhere around 4-5%. As you can see, the USA has already fallen below the critical level. That is, the possibilities of quantitative growth are limited. But the NFP indicator is just the quantitative growth and there is almost no space for it. So, the US will be very difficult to maintain the growth rate of new jobs at + 200K per month.
And finally, as we said earlier, there are purely technica reasons, if you look at the Dollar Index chart, you can see its inability to overcome the key resistance 95 and see signs of a nascent correction: consolidation at the top, the formation of reversal graphical patterns, candlestick signals, in a neutral-negative state (see the KenJi and TDI indications), etc.
So, we believe that the chances of a dollar increase are small, but the probability of correction is great. Therefore, we recommend selling the dollar on all fronts. The minimum target for correction for the Dollar Index is 93.30. But very likely and descent to area 90 in the foreseeable future.
