USD recovers amid two attempts to talk it up – only a dead cat bounce

US Treasury Secretary Steven Mnuchin said that “a weak dollar is good for the US“. The greenback was already on the back foot and his words sparked a bigger drop in the currency.

The USD sell-off is now experiencing a pause. A natural correction after a big move certainly makes sense, but there are also some verbal attempts to stop the rout:

  • Mnuchin himself: The Treasury Secretary is trying to water down his own comments. Today he said that he is not concerned about where the dollar is in the short term, and that “we believe in free currencies”. And, he added a more bullish comment: the long-term level reflets the strength of the US economy. Mnuchin also talked about other matters such as a trade and the wording about the dollar is already quite different.
  • Christine Lagarde: The Managing Director of the IMF called on Mnuchin to “clarify his comments” and added that the value of the greenback is determined by the markets. She is also trying to stop any kind of verbal intervention to weaken the dollar and on the way strengthen the USD.

And the greenback is indeed recovering:

  • EUR/USD dropped under 1.24 after hitting a high of 1.2460.
  • GBP/USD finally took a breather after hitting a key resistance line. It trades at 1.4260.
  • USD/JPY stabilized above 109 and is trading around 109.20.

Will this recovery continue or is it a “dead cat bounce” for the dollar?

For the euro, a lot depends on the ECB. See our preview: A buy opportunity on Draghi trying to down the euro?

And what about other currencies? The dollar selling trend is quite strong and perhaps we would need a good figure from the US to really stop the rout. Tomorrow we will get the first release of US GDP.

More: Will the ECB send EUR/USD higher or lower? 5 opinions

Here is the bounce on the USD/JPY chart. Is it a dead cat or a live one?


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