The US Dollar Is in Trouble Again

[Ben Graham]

Yesterday the US dollar sharply slumped in pairs with several risk-sensitive assets following news that US consumers have shown signs of fatigue just before what could become the longest government shutdown, and their outlook has only deteriorated since.

According to data released on Tuesday, retail sales in September rose by only 0.2%. A more recent report from the Conference Board showed that consumer confidence fell to its lowest level in seven months, reflecting growing concerns about the labor market and the economy. The drop from 95.5 in October to 88.7 in November is also very significant and sensitive, which is negative for the dollar.

These data sparked a wave of concern among traders, who fear that a slowdown in consumer spending may signal a broader economic downturn. The dollar immediately reacted to the news, falling against major currencies such as the euro and the pound. Traders began revising their expectations for future Federal Reserve policy, suggesting that the central bank may continue cutting interest rates to stimulate economic growth.

Weak retail sales and falling consumer sentiment have amplified worries about a slowdown in global economic growth.

"The consumption outlook, which has been a real driver of growth for the past several years, is now raising a lot of questions," said Pantheon Macroeconomics.

The fact that consumers are buying big-ticket items less frequently and looking for bargains speaks for itself. According to credit firm TransUnion, more than half of Americans expect to spend at least as much this holiday season as they did last year. However, this is likely partly due to rising prices, as some companies are having to reduce Black Friday discounts because of tariffs.

Meanwhile, policymakers remain divided on whether interest rates should be lowered, as they debate employment prospects while inflation continues to exceed target levels. Because of the government shutdown, they will not have key data for recent months in any of these areas until the meeting scheduled for mid-December this year.

As for the current EUR/USD technical picture, buyers now need to think about how to take the 1.1600 level. Only then will they be able to target a test of 1.1630. From there, the pair could climb to 1.1655, but doing so without support from major players will be quite challenging. The most distant target will be the 1.1675 high. In case of a decline in the instrument, I expect any serious action from major buyers only around 1.1575. If no one shows up there, it would be preferable to wait for a renewal of the 1.1550 low or to open long positions from 1.1520.

As for the current GBP/USD technical picture, pound buyers need to take the nearest resistance at 1.3211. Only this will allow them to target 1.3244, above which a breakout will be quite difficult. The farthest target will be the 1.3275 level. If the pair falls, bears will attempt to regain control of 1.3180. If they manage to do so, a breakout of this range will deliver a serious blow to the bulls and push GBP/USD to the 1.3155 low with the prospect of reaching 1.3125.

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