Stronger economic data this morning helped drive shorts out
of the Dollar and triggered a surge to the upside which put the U.S. Dollar
Index in a position to post a six-month high.
Early in todayâ€™s trading session, the Dollar was trading
lower as appetite for risk drove up demand for higher yielding assets. Trading
was once again subdued due to tomorrowâ€™s European Central Bank and Bank of
England announcements. Many major players are also trading lighter ahead of the
jobs report on Friday, February 5th.
This morningâ€™s ADP Employment Report showed that fewer jobs
were lost during January. This lent credibility to the notion that the economy
is improving and that Fridayâ€™s Non-Farm Payrolls Report may actually show
positive jobs growth. Traders are now feeling more confident about the economy.
Some are speculating that Fridayâ€™s jobs report may actually show positive
In another report, Januaryâ€™s ISM Non-Manufacturing Index
crossed the 50 level indicating that momentum was turning to the upside.Following the release of these reports, traders
reversed the course of the Dollar, indicating that investors were shifting
their focus away from risk and on improvement in the U.S. economic outlook. Global
currency markets sold off as demand dropped for higher yielding currencies.
Both reports supported the Dollar because they provide the Fed with more
information needed to begin raising interest rates.
The EUR USD reversed course after testing a minor 50%
retracement level at 1.4023. Todayâ€™s weakness is a pure economic play. The
release of upbeat U.S.
reports supports calls for a strengthening economy. News that the European
Union accepted the proposed budget deficit solution from Greece helped
give the Euro an intraday boost, but concerns remain, therefore, the gains were
unable to take hold. The recent rise in the Euro was attributed to easing
tensions in Greece.
Problems still remain in Portugal
which could limit the Euros upside potential. On Thursday, the European Central
Bank is expected to announce that interest rates will remain steady at 1%.
The GBP USD spiked to the upside last night on the news that
U.K. consumer confidence had
risen more than expected, but backed down when U.K. services data failed to meet
expectations. These stories provided more evidence that the Bank of England
will likely leave its quantitative easing program intact or perhaps increase or
Speculators had been driving this market higher on the
notion that the Bank of England members will provide a more hawkish opinion on
the economy in tomorrowâ€™s policy statement. Todayâ€™s stronger U.S. economic
reports put pressure on the British Pound. Traders turned bearish once they
realized the U.S.
economy was on a faster pace toward recovery.
The USD JPY rallied sharply higher after the release of
economic reports. Improvements in U.S.
jobs and non-manufacturing sector encouraged traders to focus more on the
economy rather than the weaker Japanese economy.
The stronger U.S.
economy and the weaker Euro helped put pressure on the Swiss Franc, triggering
a rally in the USD CHF. Look for talk of intervention by the Swiss National
Bank, if the Swiss Franc appreciates too much versus the Euro.
The USD CAD finished sharply higher following a sell-off in
commodities, led by weaker gold and crude oil. Falling demand for higher
yielding assets also put pressure on U.S. equity markets. The drop in
crude and gold could put pressure on the Canadian economy which relies on those
to key export markets.
A drop in demand for higher risk assets helped to pressure
the NZD USD. A drop in demand for commodities could be a drag on the New Zealand
economy. Traders are concerned that an improving U.S. economy signals the Fed is
moving closer to hiking rates. This will tighten up the interest rate
differential between the two countries, taking away some of the incentive to
invest in New Zealand
The AUD USD weakened after stronger U.S. economic
reports drove traders into the Dollar. Tuesdayâ€™s low is still holding, but Wednesdayâ€™s
friendly economic news moves the Fed closer to raising interest rates. This is
pressuring the Aussie since a hike in U.S. rates will tighten the
interest rate differential between the two countries.
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Mon 10 Sep 2018 AA 08:30 GB- GDP, Trade, Output Tue 11 Sep 2018 AA 08:30 GB- Employment Decision A 09:00 DE- ZEW Survey Wed 12 Sep 2018 A 12:30 US- PPI A 14:30 US- EIA Crude A 18:00 US- Beige Book Thu 13 Sep 2018 A 1:30 AU- Employment AA 11:00 GB- Bank of England Decision AA 11:45 EZ- European Central Bank Decision A 12:30 US- Weekly Jobless AA 12:30 US- CPI Fri 14 Sep 2018 A 08:30 GB- GDP AA 12:30 US- Retail Sales A 13:15 US- Industrial Production AA 14:00 US- prelim University of Michigan
John M. Bland, MBA co-founding Partner, Global-View.com
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