After suffering a mild setback following the release of yesterday’s Federal Funds Rate policy statement, the USD now seems poised for a come-back. At the opening of the US market today at 12:30 GMT, traders will catch a glimpse of US retail sales and unemployment claims which are both expected to show a continuation of growth in the United States helping the USD regain some of yesterday’s losses.
Economic News
USD – Dollar Down on All Fronts Except JPY Following Fed Statement
The U.S. Dollar trimmed earlier losses against major counterparts on Wednesday after the Federal Reserve left Interest Rates unchanged, near zero percent. The Dollar pared earlier losses versus the EUR in the first 20 minutes after the Fed’s statement on optimism that the end of the purchase program would reduce the risk of inflation, which erodes the purchasing power of the greenback. However, the USD resumed its decline afterwards as stocks gained.
Against the Japanese yen the U.S. Dollar kept broad gains after the Federal Reserve painted a less gloomy outlook for the U.S. economy, an assessment that led investors to return to commodity-linked currencies in droves. The Federal Reserve has also said it would slow the pace at which it buys Treasuries by extending the duration, but not the size, of its $300 billion program to buy long-term government securities.
Analysts have said that while sentiment toward riskier assets has improved, there was a general degree of caution on the Fed’s move to extend the time-frame of asset purchases as it indicated that the economy was still vulnerable. Today, forex traders will catch a glimpse into US Retail Sales and the weekly unemployment claims report. If sales continue to grow in the US, as is forecast, the USD may be capable of going bullish later in the day.
EUR – The Sterling Remains under Downward Pressure
The European currency gained for a 3rd consecutive day against the U.S Dollar before the European Union’s statistics office releases its 2nd quarter Gross Domestic Product numbers in Luxembourg. GDP in the 16-nation Euro-Zone shrank 0.5% after a 2.5% contraction in the 1st quarter, according to economist predictions.
The EUR also advanced against 13 of the 16 major currencies before the release of a U.S. report that may show retail sales gaining for a third straight month, prompting investors to seek higher-yielding assets.
The British currency had weakened yesterday ahead of the release of the Bank of England’s (BOE) quarterly inflation report. The Pound fell against the Dollar after the BOE said it may miss its inflation target amid a slow recovery. Fear of undershooting the target means the central bank is more likely to hold off on increasing rates, analysts have said.
Britain’s currency also dropped versus the Yen after the central bank’s governor said it was more likely that inflation will slow below 1% this year and unemployment may reach a 14-year high.
JPY – Yen Falls on Low Safe-Haven Demand
The Yen fell for a 2nd consecutive day against the EUR after the Federal Reserve said economic activity is leveling out, sapping demand for Japan’s currency as a refuge. The Yen depreciated to as low as 96.23 from 95.51 vs. the US Dollar at the close of Tokyo stock trading. A weaker domestic currency increases the value of overseas sales at Japanese companies when repatriated.
The JPY also weakened against all 16 major currencies as Asian stocks extended a U.S. equity rally on signs the global slump is abating, encouraging investors to buy higher-yielding securities. For today, most attention will be paid to the New Zealand Dollar (NZD) following the evening release of its retail sales reports. With a recently bullish NZD, this report has the potential of creating a reversal to this trend if it comes out worse than forecast.
Crude Oil – Oil Prices Rebound above $70 a Barrel
Crude Oil ended higher Wednesday as a rally on Wall Street and sudden Dollar weakness overshadowed government data showing a bigger-than-expected rise in crude supplies. While the fundamental picture is bearish, Crude is being supported by a weaker U.S Dollar and stronger equity markets. Traders appeared to shrug off government data showing a build-up in crude supplies. Oil’s strength came despite a report from the U.S. Energy Information Administration (EIA) showing U.S. Crude Oil Inventories rose 2.5 million barrels in the week to August 7, well over analysts’ expectations.
Oil trimmed gains after the U.S. Federal Reserve in its policy statement said the U.S. economy is leveling out and that it was extending purchases of long-term U.S. Treasury debt to the end of October. Crude also rose as the International Energy Agency (IEA) boosted its oil-demand outlook for this year and next. In its report yesterday, the IEA said that the world will need 85.25 million barrels of oil a day next year, 70,000 barrels more than previously estimated.
Technical News
EUR/USD
There appears to be a bearish cross forming on the 4-hour Slow Stochastic while the 4-hour RSI is just entering the over-bought region, signaling a downward correction may be in order later in the day. The hourly MACD supports this notion with its own bearish cross. Going short may be the preferable strategy today.
GBP/USD
Short-term indicators are beginning to level-off showing signs of neutrality. On the other hand, there is a very clear bullish cross on the 4-hour MACD and daily Slow Stochastic, pointing to the notion of an upward correction in the mid- to long-term for this pair. Waiting for the upward move and then entering long positions could be a good way to make money on this pair.
USD/JPY
A bullish cross has just formed on the hourly MACD and Slow Stochastic, signaling a fast upward tick may be in the works. However, longer-term indicators are showing downward signals. This pair may be range-trading in consolidation towards the 95.75 price level before making a volatile jump. Waiting for the breach and then entering the new trend early may be a wise choice.
USD/CHF
The price appears to have entered the over-sold territory on the 4-hour RSI, but it still points downward, indicating that the downward movement may not have finished just yet. The bearish cross on the 4-hour MACD supports this notion. Staying short on this pair for the time being may not be a bad tactic today.
The Wild Card
NZD/USD
This pair has been in a steady bullish channel for a number of months now with hardly any signs of stopping. However, the daily and weekly charts show the price floating in the over-bought territory of their respective RSIs. A bearish cross on the weekly Slow Stochastic has also just formed, indicating that this pair is due for a strong downward movement giving forex traders a great opportunity to call the reversal and ride out the downward wave for some hefty profits.
Written by: Forexyard.com