Dollar Falls on Federal Reserve Speculations

Negative economic data, as well as speculation regarding further monetary easing by the Federal Reserve, pushed the USD to its lowest level since April. Markets await the release of the Non-Farm Payrolls (NFP) data due Friday for signs of the economic conditions in the US.

Economic News

USD – USD Falls on Negative Economic Data

The US dollar fell against its major counterparts after disappointing US economic data prompted speculation that the Federal Reserve could take additional monetary measures to boost the sluggish economy. The USD dropped to an 8-month low versus the Japanese yen over concerns about the economic recovery in the US, as well as to a 3-month low versus the euro.

US factory orders fell by more than expected in June from May, while pending home sales dropped an unexpected 2.6% in June, after declining 30% in May. Furthermore, a report was published by the Wall Street Journal suggesting that the Federal Reserve may prevent monetary tightening and start a bond purchasing program once again. The continuous flow of negative US economic data exacerbates concerns that the Fed will have to take monetary action soon.

Investors are keenly awaiting the Non-Farm Payrolls (NFP) data due this Friday to better gauge the pace of US economic recovery. Today traders should follow the release of the ADP Non-Farm Employment Change Estimate due at 12:15 GMT as a prelude to Friday’s release, as well as the ISM Non-Manufacturing PMI at 14:00 GMT. Better than expected results may provide the greenback with a much needed boost.

EUR – British Pound Rises on Bank of England Comments

The euro rose to a 3-month high against the USD Tuesday after a slew of negative economic data dampened demand for the greenback. The EUR rose to $1.3234, up from $1.3183 late Monday; rising as far as $1.3261, the highest level since May.

The euro has been gaining strength as signs continue to mount that the economic recovery in the US is stagnating. Also, speculation has arisen that the Fed might announce further bond purchases in order to stimulate the US economy, a monetary measure which would pump more greenbacks into the market, intentionally reducing its value.

The British pound rose to $1.5946 Tuesday after former Bank of England (BOE) Deputy Governor John Gieve reassured investors about the of British economic recovery, stating that further monetary loosening may not be required.

Today, investors are advised to follow the release of the Helifax HPI at 6:00 GMT as well as any data coming from the US.

JPY – Yen at 8-Month High vs. USD

The Japanese yen rose to an 8-month high against the greenback as concern the Federal Reserve may take up additional stimulus measures to boost the sluggish US economy.

Japan’s currency rose against all of its 16 major counterparts after the release of disappointing US economic figures. Data has shown US factory orders and existing-home sales fell in June while consumer spending stagnated. Japan’s currency gained 0.8% to 85.50 per USD. The yen also rose 0.5% to 113.12 per EUR.

Crude Oil – Spot Crude Oil Breaks above $82 a Barrel

Crude Oil futures rose above $82 a barrel for the first time since May despite disappointing US economic data. Crude’s rally was boosted by a weak US dollar, as oil is denominated in dollars and is therefore cheaper for investors. An expectation of a decrease in oil supply further boosted Crude Oil prices.

Light Sweet Crude for September delivery settled up 1.5%, or $1.21, at $82.55 a barrel on the New York Mercantile Exchange yesterday, the highest settlement since May 4. Today investors should follow any news release from the US as well as the Crude Oil Inventories report to be released at 14:30 GMT.

Technical News

The pair has been experiencing some very bullish behavior in the past week, as it currently stands around the $1.32 level. The main oscillators of the daily chart indicate this trend may continue into the near future. However, the hourly Slow Stochastic reveals that a bearish cross is about to occur, indicating that a bearish correction may be imminent. Now may be a ripe time to take advantage of the situation at an early stage.
The cross has received increasing support as of late, as this pair approaches new highs. The continuation of the bullish trend is supported by the 1-day and 1-week charts’ MACD. On the other hand, the 4-hour and 1-day charts’ Slow Stochastic seems to contradict this. It may be wise to open a long position with tight stops before the bullish trend comes to an end.
The pair has been going through much bearish behavior in the past several days. The MACD of the 1-hour chart fails to show a clear signal as to the future direction of this pair. However, the 1-day Stochastic Slow and RSI show that this pair is still likely to go lower before making a bullish correction. Traders should take advantage of this bearish trend now while it still carries steam.
The 1-day Stochastic Slow shows that the pair may continue its downward trend into the near future. This is also supported by the 4-hour charts’ MACD. However, the 4-hour Stochastic (slow) seems to indicate that a bullish cross is imminent. It may be a wise move for traders to open a long position with tight stops when this bullish cross is completed.

The Wild Card

Gold prices have been increasing rapidly lately, as they stand at over $1,191 per ounce. The 1-day and 1-week chart shows that this bullish trend is set to continue. This is also supported by the 1-hour and 4-hour MACD oscillator. It may be a wise move for forex traders to enter this very popular trend as it shows no sign of stopping anytime soon.

Written by