Philly Fed Manufacturing Index Boosts Dollar

The Philly Fed Manufacturing Index and a string of other positive U.S. data boosted the Dollar yesterday. This marks a turnaround for the U.S., as there is increasing optimism that the current recession will be over sooner than later. Now may be a good time for forex traders to enter the market as investors continue to profit from yesterday’s bullish Dollar.

Economic News

USD – Dollar Driven Higher By Federal Reserve Rate Outlook

The U.S Dollar went bullish versus the EUR and Yen on Thursday after a report showing the number of continuing claims filed for jobless benefits during the first week of June fell more than expected. The USD finished trading to end up 38 pips higher vs. the EUR at $1.3917, while against the Yen, the USD rose 0.9% to 96.58 Yen.

Sharply higher U.S. Treasury yields also lent support to the Dollar. Higher rates on U.S. investments compared to the rest of the world are expected make the USD more attractive versus other currencies in the short-medium term future. In the earlier trading however, the greenback weakened as traders cut bets that the Federal Reserve will raise its benchmark Rate this year to a 45% chance from 64% odds a week ago.

The Dollar traded in a range between $1.3750 per EUR and $1.4001 this week. The currency fell to a 6 month low of $1.4338 on June 3 on concern that investors will demand higher yields as U.S. debt sales surge to finance a record budget deficit.

Analysts stated that with no U.S. economic data due for release on Friday, many investors were starting to look ahead to a Federal Reserve policy meeting next week. The outcome of the Fed meeting, which commences on Tuesday, and the ensuing reaction in U.S. long-term yields are seen as key to the near-term direction of the U.S Dollar in the future.

EUR – EUR Climbs Against the CHF

The EUR jumped against the Swiss franc on Thursday to as high as 1.5144 Francs amid speculation that the Bank for International Settlements was acting on behalf of the Swiss National Bank (SNB) to defend the 1.50 Franc level, analysts said. The EUR may weaken however against the Swiss Franc should the SNB soften its stance on weakening its currency, according to analysts.

The EUR also advanced against 12 of the 16 major currencies on speculation that the European Central Bank’s (ECB) officials speaking tomorrow will signal they plan to keep Interest Rates on hold, maintaining the allure of assets in the 16-nation region. The EUR also gained for a second day versus the Pound after U.K. Retail Sales unexpectedly dropped in May for the first time in 3 months.

The European currency appreciated to as high as 0.8604 vs. the Pound Sterling, and may move higher to 90 pence in the next 3 months. Against the U.S Dollar, however, the EUR weakened to $1.3917, from $1.3955 yesterday. Investors have abandoned bets that the EUR would appreciate further after the common European currency failed to strengthen beyond $1.40.

JPY – The Yen Tumbles Versus the Major Currencies

The Japanese Yen weakened against all 16 major currencies after U.S. economic reports added to signs the steepest global slump since World War II may be starting to end. The JPY remained low against the EUR for a third day as signs the global recession is easing spurred demand for higher-yielding assets. The currency weakened to 134.43 per EUR and fell to 96.58 per U.S. Dollar. The Yen declined the most versus the Australian and New Zealand Dollars after the World Bank said the Chinese economy will expand 7.2% this year, up from a previous forecast of 6.5%.

The Japanese currency is still headed for weekly gains versus the Dollar and the EUR after U.S. reports earlier this week showed confidence among homebuilders fell unexpectedly in June, and industrial production dropped for a seventh month in May, raising concerns that any recovery by the world’s largest economy will take time. The Yen may continue to decline if there are more signs in the coming week that the global economic slump is dissipating.

Crude Oil – Crude Oil Rises on Positive U.S. Outlook

Crude Oil finished Thursday’s volatile session 49 cents higher at $72.00 a barrel. The commodity was upbeat after economic data in the U.S. raised hopes for an economic recovery. Oil prices have nearly doubled since February on signs of a potential economic recovery. However, the pace of the rally has also sparked concerns that prices do not fully reflect improvements in Oil fundamentals, and costly Crude may hurt any nascent recovery.

Oil had risen above $72 this week on a weaker Dollar and militant attacks in Nigeria, Africa’s biggest Oil producer, which disrupted supply. Investors have also pushed Oil higher by buying contracts as an inflation hedge to offset a decline in the Dollar. There is a reasonable possibility that the price of Crude will continue to rise in the coming weeks.

Technical News

The pair made its bearish reversal yesterday, reaching the 1.3917 level. The hourly chart’s RSI and daily chart’s Stochastic slow indicate that this bearishness may be short lived, as the cross could go bullish again anytime soon. Entering the pair at an early stage may turn out to be a good strategy for today.
There still seems to be plenty of steam left in the GBP/USD upward momentum. The MACD of the 4-hour chart and RSI of the daily chart support this upward notion. Entering the bullish trend now may be a wise choice today.
The pair has gone increasing bullish recently, reaching as high as the 96.76 level. The chart’s 4-hour MACD supports a further bullish behavior for this pair, whereas the chart’s 4-hour RSI contradicts this. Entering the pair when the signals are clearer may be a wise choice today.
The USD/CHF cross has been range trading between the 1.0750 and 1.0900 levels as of late. It seems that the pair’s bullish run may have run out of steam, and a bearish correction could be underway soon. This notion is supported by the RSI of the hourly and weekly charts. Going short with tight stops may turn out to be a good strategy today.

The Wild Card

This volatile pair continues to be affected by the volatile forex market. The last 2 days has seen a lot of strength in the EUR/NOK pair. The hourly chart’s Bollinger Bands and daily chart’s RSI support this trend to continue. Entering this popular trend now may turn out to be a wise strategy today.

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