The US Dollar bulls suffered a heavy defeat which was delivered by the same entity which gave them hope; the US Federal Reserve. Every forex bull in the US currency has placed all their hopes and arguments for a strong US Dollar on the assumption that the US Fed will raise rates as soon as June of this year. This caused more and more buy orders to flood the market while economic reality was utterly ignored.

The NFP report for February appeared to have given then final bullish push as the data came in better than expected. Many have paid too much attention on the unemployment rate which has dropped to 5.5%, but the drop was fueled by wrong factors. In fact the US labor market has not been in worse shape in its history with an unemployment rate below 6.0%. While forex traders may ignore this the US Fed under Janet Yellen does not and even mentioned that there is more room for the unemployment rate to contract.

The reason the unemployment rate dropped is because the work force is shrinking as disgruntled long-term unemployed are leaving the workforce and gave up hope to find employment. As soon as an unemployed person stops to seek employment the US government stops counting them as unemployed. In addition many of the jobs added are low quality, low income or temporary jobs which do not stimulate economic growth.

Retail sales are plunging, consumer spending is contracting while personal income is near standstill and just this week a fresh dose of economic reports were released which showed that the US economy is in much worse shape than previously expected. Existing home sales rose by only 1.2% in February which missed expectations for an increase of 2.0% and followed a drop of 4.9% reported in January. The Chicago Fed National Activity Index showed a level of -0.11 in February after January’s report showed a level of -0.10.

Durable goods orders plunged by 1.4% in February in the latest round of great economic disappointments out of the US. Expectations called for an increase of 0.2%. Excluding transportation durable goods orders dropped by 0.4% while the key capital goods orders non-defense and excluding aircraft also dropped by 0.4%. Continuing claims are shooting above the 2.4 million mark. Is US Dollar bullishness warranted? No, not by fundamental factors which means a bigger correction may be on the horizon.