Euro Resumes Short-Covering Rally Amid Better Economic Data
The U.S. Dollar is trading lower against the European
currencies buoyed by fresh Euro Zone economic data and spillover buying
following yesterdayâ€™s strong U.K. GDP report. Worse than expected Australian
retail sales is pressuring the Pacific Rim
currencies and speculators are driving up the Canadian Dollar ahead of this
mornings GDP data.
Trading has been light overnight as traders await this
morningâ€™s U.S. ADP private employment report. The ADP number is expected to
show an increase of 40,000 jobs. A number greater than the pre-report guess
could be bullish for the Dollar if traders decide to take into consideration a
possible interest rate hike sooner than expected by the Fed. The Dollar could
fall if traders decide to turn up demand for higher risk assets because of the
news. A weaker than expected report is likely to also be bullish for the
Dollar. Given the nature of the trade recently, it is still unclear whether
this market likes the Dollar because of the improving economy or if it likes
the Dollar as a safe-haven. Either way, traders should look for the first
volatile trading action this week following the release of this report.
Later in the morning, traders will be watching the Chicago
PMI and U.S. Factory Order reports to look for clues that the economy is
improving. Traders are looking for this business barometer report to come in
between 58.3 to 63.0 with a consensus of 61.0. After posting a strong 1.7% gain
in January, this morningâ€™s February Factor Orders report is expected to rise by
The EUR USD is trading higher overnight following a better
than expected Euro Zone economic report. News that Euro Zone consumer prices increased
more than expected helped the Euro advance against the Dollar. This news
supported the currency and offset the news that Euro Zone unemployment edged
higher as expected.
On Tuesday, the Euro was under pressure because of a drop in
the Greek 7-year Bond that was sold in a well-received auction the previous
day. A new issue of Greek 12-year Bonds was poorly demanded by traders, sending
doubts throughout the Euro Zone that Greece would be able to live up to its
Technically, the Euro behaved as expected by correcting back
50% of the first leg up from the recent bottom. The short-term range is 1.3267
to 1.3537 with a retracement zone at 1.3402 to 1.3370. Early last night, the
Euro completed a 50% retracement of this swing when it tested 1.3384. Buyers
came in at this level to drive the market higher, putting it in a position to
turn the main trend to up on the daily chart following a breakout over the last
swing top at 1.3537.
The GBP USD is trading higher this morning following
Tuesdayâ€™s better than expected 4Q GDP report. The overnight rally helped this
market breakout over a key 50% price level at 1.5080. The trend remains down
until the last swing top at 1.5381 is broken, but the formation of a secondary
higher bottom at 1.4797 is giving this market a bullish spin. Gains could be limited
today because of political concerns. Traders are watching the upcoming election
closely for signs of a possible â€śhung Parliamentâ€ť. The British Pound would
likely weaken if this occurs since it would curtail any progress in reducing
the huge U.K.
The stronger Euro is helping to pressure the USD CHF. This
morning this pair is caught between a pair of retracement levels at 1.0628 to
1.0600. Further strength in the Euro is likely to pressure this pair through
the lower end of this range. This could help accelerate downside momentum which
could drive this market down to a 50% level at 1.0513.
Signs of an improving U.S. economy are helping the USD
JPY extend its recent rally. Yesterdayâ€™s better than expected U.S. consumer
confidence report helped launch the current up leg. Speculation of a strong ADP
employment number this morning is helping to boost the market overnight. In
addition, traders still feel the Japanese government and central bank are not
doing enough to help the economy to improve.Furthermore, there still exists the real possibility that deflation will
threaten the economic recovery.
The USD CAD is trading lower this morning as speculators
press the lower end of a key retracement zone at 1.0181 to 1.0152 in
anticipation of this morningâ€™s Canadian GDP Report. Pre-Report estimates are
for the 4Q GDP figure to show an increase of 0.5%. This is down slightly from
the previous estimate of 0.6%.
Currently, the Dollar/CAD is trading at an important area. A
break through the lower end of the retracement zone will indicate weakness, but
regaining the upper end at 1.0181 will send a signal that a secondary higher
bottom may be forming. This could trigger the start of a strong rally.
Following the release of this morningâ€™s reports, movement
could be limited in this market as traders will once again turn their focus on
Fridayâ€™s U.S. Non-Farm Payroll report.
The AUD USD is trading lower overnight as bullish traders
take profits following the recent rise and pare positions following a disappointing
retail sales report. The report missed its mark as traders were banking on an
increase of 0.3% versus the -1.4% actual number. The poor report now raises
doubts that the Reserve Bank of Australia
will raise interest rates by 25 basis points in April as speculated earlier in
the week. Some traders still feel rates will move higher based on hawkish
comments over the weekend from RBA Governor Glenn Stevens.
The NZD USD is trading slightly lower in sympathy with the
drop in the Aussie Dollar. The poor showing in Australian retail sales raises
doubts that the New Zealand
economy has strengthened enough to warrant a June rate hike as expected.
Technically, this market found resistance at a major 50% level at .7124.
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