Dollar Finishes Nearly Unchanged Following Volatile Trade
The U.S. Dollar finished nearly unchanged in a volatile
trade, highlighted by a choppy two-side market.Late last night, the Dollar was down sharply against most major
currencies on end-of-the-year position squaring.Throughout the night, however, a support base
was built as traders awaited this morningâ€™s U.S. Initial Claims Report.The Dollar surged to the upside following the
release of the better than expected claims report.Traders reacted positively to the good news
as it indicated the economy was still on track for a recovery, and the Fed
would have to consider hiking interest rates sooner rather than later.
Next week the Dollar faces potentially volatile conditions
as the bigger players return to work after an almost two week absence. Trading
could get wicked as traders position themselves ahead of the U.S. Non-Farm
Payrolls Report on January 8th.
This report is likely to set the tone for the Dollar for
several months.Last monthâ€™s report
showed a surprising drop in the unemployment rate from 10.2% to 10.0%.Traders will be watching the next report to
see if the last report was an aberration or the start of a trend.The direction of the Dollar for several
months will be decided by this report. A better than expected number should put
the pressure on the Fed to begin raising interest rates before the start of the
third quarter.A bearish report will
mean the Fed will wait until after June.
Technically, the daily chart is indicating the Dollar Index
is ripe for a near-term correction.A
trade through 77.33 will turn the main trend to down and set up a correction to
76.31 to 75.80. Thursdayâ€™s sell-off stopped just short of testing the bottom at
This morning, the daily chart pattern in the EUR USD suggested
the minor trend was ready to turn up on a trade through 1.4457, but sellers
stepped in after the friendly U.S.
initial claims report to pressure the Euro. No actual damage was done to the
chart formation so the first upside objective over the short-term remains
1.4680 to 1.4790. Whether traders go after this level will be determined by a
slew of U.S.
economic reports next week especially the employment report on January 8th.
The GBP USD followed through to the upside after Wednesdayâ€™s
spectacular turnaround.The daily chart
indicates that this market has room to the upside with 1.6355 to 1.6478 the
next objective. The tone was firm today although the Pound closed slightly off
The USD JPY rebounded after a steady to lower opening and
surged to the upside following the release of the better than expected initial
claims report. This report signaled an improving economy and put the Japanese
Yen in a position to weaken further. Minor support is being formed at
91.90.A break through this level could
trigger an acceleration to the downside to 90.50. The main trend on the weekly
chart turned up this week when the market crossed the last main top at 92.32.
The USD CHF traded under pressure overnight but managed to
take back most of the loss during the New York
session as the friendly U.S.
initial claims report underpinned the market throughout the day. The daily
chart indicates the minor trend will turn down following a break through 1.0278.The first downside objective is a retracement
zone at 1.0212 to 1.0143. Regaining the top end of a retracement zone at 1.0419
will put the Swiss Franc in a weak position.
The USD CAD had an inside day, but closed higher. After a
50% correction of its recent break, the USD CAD felt selling pressure early but
turned around after the .618 retracement level at 1.0459 was tested. Short-term
resistance is at 1.0555 to 1.0600.Investors seem content with letting this market remain rangebound albeit
under volatile conditions.
The AUD started higher this morning buoyed by higher global
equity markets.The surge to the upside
took the Aussie into a retracement zone at .8964 to .9018 where it died when
volatility slowed throughout the trading session. A close over .8964 is an
indication of strength, but the .618 price at .9018 has to be taken out to
accelerate this market to the upside.
The NZD USD surged to the upside after breaking through a
downtrending Gann angle from the .7529 top at .7219 on Thursday.Profit-taking along with the late session
sell-off in the U.S.
equity markets limited gains and drove the New Zealand Dollar off its
high.Watch for a possible retracement
to .7185 to .7144.
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20 Feb Mon
00:00 US- Holiday 21 Feb Tue
All Day flash PMIs 22 Feb Wed
09:00 DE- IFO Survey
09:30 GB- GDP
10:00 EZ- Final HICP
13:30 CA- Retail Sales
15:00 US- Existing Homes Sales
19:00 US- Fed Policy Minutes
20:30 US- API Crude 23 Feb Thu
13:30 US- Weekly Jobless
14:45 US- flash Service PMI 24 Feb Fri
13:30 CA- CPI
15:00 US- New Homes Sales
15:00 US- final Univ of Mich Survey
Odds are Monday will ba a subdued trading session with no major data slated and U.S. markets closed for the President' Day holiday. Key data are due over the week with the first round of PMI releases (flash) along with the German IFO Survey. These tend to be important items for analyst but not as much so for the markets in terms of price fluctuations.
As for where the forex markets are headed, my focus is on market sentiment vis-a-vis economic growth in the U.S. The Fed appears to be embarking on a policy "normalization" path starting with a rate hike on March 15. Market odds on a hike are only 38%. Traders simply don't believe the Fed has the courage to go through with a rate hike. For Yellen to have any future credibility she should hike rates. I'm not sure what this Fed is made of. A 25bp rate hike will not decimate the economy. We will see.
I feel that equity markets are currently of two minds about U.S. economic growth. They are hopeful that the new U.S. administration will be able to come through with its promises, primarily a significant tax cut. However, the establishment opposition (in both parties) are doing all they can to sabotage and obstruct major reform. They have a lot to lose. In addition to tax reform, Obamacare is a quagmire. It is a financial disaster that is going to be nearly impossible to fix in the short run. Whether it all can be fixed will depend on how well Trump delegates power and on how strong his Cabinet will be.
So the equity markets are of two minds. One is optimistic about growth and the second is pessimistic that major change will sabotaged by the establishment. The USD will be suported by positive prospects for growth and undermined by fears of no change.
As of late Friday Fed Funds futures odds for a March Fed rate hike were 38% (44%). Markets now place the odds for rate hikes by June at 112% (12%). That is 100% for one hike (March?) plus 12% for a second move.
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