Dollar Weakens as Fed Leaves Rates at Record Low

The Dollar weakened on all fronts yesterday as the Fed kept rates lower than 0.25%. Today, another volatile trading session is expected as the U.S. Core Durable Goods Orders and the weekly Unemployment Claims are scheduled for 12:30 GMT. The end results are expected to be positive; will the Dollar erase its losses?

Economic News

USD – Poor Housing Data Weakens the Dollar; Fed Leaves Rates At 0.25%

The Dollar slid yesterday against most of the major currencies. The Dollar dropped about 100 pips against the Euro and the EUR/USD and is now trading near the 1.2330 level. The Dollar continues its depreciation against the Pound and the Yen as well.

The Dollar’s downfall was due to very disappointing housing data. The New Home Sales report showed that purchases of new homes in the U.S. unexpectedly dropped in May to a record low. The report showed that the number of new single-family homes that were sold during May fell to 300K, failing to reach expectations for 424K. The expiration of a tax credit was the catalyst of the poor result and showed that the market remains dependant on government support.

Also yesterday, the Fed announced that the Federal Funds Rate will remain at a record low below 0.25%. Recently the U.S. economy has provided spurring recovery data, and many have assumed that the Fed will hike rates as a result. The Fed’s decision to leave rates at their current record low also contributed to the downward pressure on the Dollar.

As for today, many interesting publications are expected from the U.S. economy. The release that might have the largest impact on the market seems to be the Core Durable Goods Orders report. A positive end result might have potential to correct yesterday’s losses. Traders should also follow the weekly Unemployment Claims, as it tends to have a large impact on the market as well.

EUR – Euro Sees Mixed Results versus the Majors

The Euro saw a very volatile trading session during yesterday’s trading. The Euro gained about 100 pips against the Dollar, yet dropped about 70 pips vs. the Pound. The Euro saw mixed results against the Yen.

A batch of data was released from the Euro-Zone yesterday, and the unstable results seem to be the main reason for the Euro’s volatility. On one hand, the German Flash Manufacturing Purchasing Managers’ Index (PMI) dropped for the third month in a row, indicating that the German economy may not recover as quickly as expected. Yet on the other hand, the French Flash Services PMI saw a better-than-expected figure as the end result marked 61.6.

The mixed results from the Euro-Zone’s economies led to a volatile trading session for the Euro. In addition, the ongoing concerns regarding the Euro-Zone’s future are keeping constant pressure on the Euro. It seems that until the Euro-Zone will provide definite recovery signals, the Euro may remain at its low level.

Looking ahead to today, the most significant publication from the Euro-Zone seems to be the Industrial New Orders. This report measures the change in the total value of new purchase orders placed with manufacturers. Analysts have forecasted that the Industrial New Orders have climbed by 1.6% during April. If the end result will beat expectations, the Euro may strengthen against its major counterparts.

JPY – Yen Reaches 4-Weeks High versus the Dollar on Risk Aversion

The Yen rose to a 4-week high against the Dollar during yesterday’s trading session. The Yen gained about 80 pips vs. the Dollar yesterday, and the USD/JPY pair is currently trading near the 89.90 level.

The Yen extended its profits against the Dollar after the Federal Reserve announced its intention to keep Interest Rates steady at a record low. The Fed also pledged to keep rates low for an extended period. In addition, the poor housing data which was published from the U.S. economy have also supported the Yen. The disappointing U.S New Home Sales for May has boosted risk-aversion in the market, and turned investors to look for safer assets, such as the Yen. The concerns regarding the U.S. economy’s recovery have supported the Yen, as the Yen is considered to be the safest currency at the moment. For as long as the U.S. and the Euro-Zone will continue to provide dissipating data, the Yen may rise further.

As for today, traders are advised to follow the Tokyo Core Consumer Price Index (CPI). This report is considered to be one of the most reliable inflation indicators in Japan and the results tend to have in impact on the market. Analysts have forecasted that Japanese CPI has dropped by 1.5% during June. If the actual result will be similar, the Yen might drop against the major currencies.

OIL – Crude Oil Drops Below $76 a Barrel

Crude oil dropped below $76 a barrel for the first time in 8 days during yesterday’s trading session. Crude oil fell about 200 pips in yesterday’s trading and is currently trading near $76.00 a barrel.

Crude oil fell yesterday following an unexpected gain in U.S. stockpiles. The U.S. Crude Oil Inventories report showed that the number of barrels of crude oil that were held in inventory by commercial firms during the past week rose by 2.0M, beating expectations for a 1.2M decrease. In addition, the dissipating U.S. housing data that was released yesterday has created concerns that the U.S. economic recovery may take longer than expected, and as a result will damage demand for energy.

Looking ahead to today, traders are advised to follow the leading publications from the U.S. and the Euro-Zone, as these tend to have a large impact on crude oil trading. Traders should take under consideration that positive data has potential to erase crude oil’s losses.

Technical News

Yesterday’s appreciation of the pair had the price rising to a minor trend line that begins on April 15th. If the price fails to rise above the trend line, this will be the 3rd point of contact, making this a significant trend line. Traders may find a good opportunity to go short at the trend line to enter into the long term downward trend of the pair. The RSI 10-day has breached below the 70 level, indicating a sell signal to short. A protective stop should be placed above the trend line.
The Cable was one of the strongest movers in the FX markets yesterday. As such, the pair made a close above some significant technical resistance. The pair closed above the 100-day moving average, the 23.6% Fibonacci line for the bearish trend, and the 1.4930 resistance level. Momentum appears to be to the upside as the 14-day RSI is trending sharply higher. The next major resistance levels rest at 1.5125 and 1.5190.
The pair has broken out of its trading range for the month, breaching below the support level of 90.80. The 14-day Relative Strength Index is moving shapely lower and has breached below the 30 level. This indicates that the momentum is to the downside. Traders may want to target the next support level at 89.90.
The pair has recorded much bearish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, the daily chart’s Stochastic Slow signals that a bullish reversal is imminent. An upward trend today is also supported by the RSI. Going long with tight stops may pay off today.

The Wild Card

This pair’s sustained upward movement has finally pushed its price into the over-bought territory on the daily chart’s RSI. Not only that, but there actually appears to be a bearish cross on the Slow Stochastic pointing to an imminent downward correction. Forex traders have the opportunity to wait for the downward breach on the hourlies and go short to ride out the impending wave.

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