U.S. Dollar Drops Hard against European Currencies
The U.S. Dollar traded sharply lower on Wednesday against
the European currencies and gave back most of its gains against the others
following a weaker than expected U.S. ADP private jobs data report. The
direction was strong but traders may have taken advantage of thin trading
conditions ahead of Thursdayâ€™s and Fridayâ€™s key economic reports.
On Thursday, traderâ€™s get to face U.S. Jobless Claims early
followed by the ISM Manufacturing Index and Construction Spending. Job claims
will shed a little more light on the U.S. jobs situation. On Friday, the
government will release the monthly Non-Farm Payrolls Report. Volatility may be
strong early Thursday as traders may once again try to take advantage of the
thin trading conditions.
The reaction in the Euro and British Pound on Thursday could
be traders feeling that the poor ADP employment number is a sign that the
recovery is not as strong as previously forecast and that the Fed is still
months away from an interest rate hike. Investors also priced in the
possibility that the U.S. Non-Farm Payrolls Report on Friday will come in less
than the currently estimated gain of 200,000 jobs.
The strong move in the EUR USD turned the main trend up on
the daily chart following the trade through the last main top at 1.3437.This market still has to overtake the
percentage retracement zone at 1.3542 to 1.3607 to trigger an acceleration to
The GBP USD finished higher because of the stronger Euro and
on the thought that the weak ADP report means the U.S. is less likely to raise
interest rates for â€śan extended periodâ€ť.Wednesdayâ€™s rally was initiated by follow-through buying following
Tuesdayâ€™s better than expected U.K.
4Q GDP Report.
The stronger Euro helped to push the USD CHF sharply lower.
Traders bought the Swiss Franc on the belief the Swiss National Bank would be
less likely to intervene to defend its currency and economy against a decline
in the Euro. In addition, traders felt the Fed had no reason to raise interest
rates since the U.S. ADP jobs data indicated the economy was still in a weak
The USD JPY started out higher this morning, but broke
following the weaker than expected U.S. ADP jobs report. The poor jobs report
triggered a rally in the Japanese Yen as traders read this report as a sign the
economy was weaker than previously estimated. The USD JPY mounted a slight
rally at the mid-session in response to the firming equity markets and was able
to finish near its high on the close.
The weak U.S.
economy helped to pressure the USD CAD. In addition, the strong Canadian GDP
data suggested that the Bank of Canada is more likely to hike interest rates
before the Fed. This widening interest rate differential helped to draw
investors into the Canadian Dollar. Additional help was provided by higher
crude oil and gold.
The Aussie and New Zealand Dollars took back some of their
earlier losses on speculation the Fed will keep interest rates lower for a
prolonged period. Early in the session both currencies traded lower after Australia
announced a worse than expected retail sales report. This market could weaken
further on Thursday if global equity markets sell-off.
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