Forex Major Currencies Outlook (March 7, 2013)

USD: Bullish

It seems that a midweek reversal is gaining traction as the U.S. dollar gained against most of its higher-yielding counterparts during yesterday’s trading. Weak data from most major economies, such as Canada and the euro zone, dampened demand for riskier currencies. At the same time, strong U.S. data in the form of the ADP non-farm employment change report and factory orders figures boosted demand for the U.S. dollar. Only the trade balance and initial jobless claims reports are due from the U.S. today and these aren’t likely to alter risk sentiment as traders would focus on the central bank decisions on tap.

EUR: Bearish

The political stalemate in Italy continued to weigh on the euro for yet another trading day. Euro traders are also starting to price in downbeat expectations for today’s ECB rate decision where Draghi is slated to address the region’s economic weaknesses. Bear in mind that the euro zone just entered its third consecutive quarter in recession as the largest regions all posted a contraction for the last quarter of 2012. Although the central bank is likely to keep rates unchanged, watch out for a potential increase in LTRO loans or hints that the ECB is mulling alternative forms of easing.

GBP: Bearish

Pound pairs are consolidating for the day as traders sit tight ahead of the Bank of England rate decision. While the bank is expected to keep rates unchanged, many are pricing in an increase in asset purchases. Recall that BOE Governor King voted to increase easing during their last rate statement but the central bank was unable to do so since majority still voted to keep monetary policy unchanged. In the last six years, whenever BOE Governor King sided with the doves, additional QE is usually implemented within the next three months. However, he’s scheduled to step down from office soon and traders might pay more attention to what incoming Governor Mark Carney has planned for the BOE and the British economy.

Commodity Currencies (AUD, NZD, CAD): Neutral

AUD/USD retreated from its recent highs around 1.0300 and appears poised to test the 1.0200 support once more. Australian trade balance came in weaker than expected and this has been weighing down both the Aussie and Kiwi. As for the Canadian dollar, a downbeat BOC rate decision and a weaker than expected Ivey PMI triggered a break above 1.0300 for USD/CAD. There are no major reports due form the comdoll economies today as these currencies could trade purely on risk sentiment.

By Kate Curtis from Trader’s Way