The USD suffered a reversal on Thursday and lost ground to the EUR and GBP as Wall Street led a positive charge affecting the currency markets. Weekly Unemployment Claim numbers were released yesterday and produced a number of 584K worse than the estimate of 573K. However investors continued their habit of brushing off bad news and looking for the positive by pointing out that the amount of overall claims was the lowest since April. The question this raises is why are the overall claims shrinking, one negative consideration would be the possibility that a large amount of unemployed people have simply run out of time and can no longer file for unemployment insurance. Next week�s Non Farm Employment Change numbers may help clarify that. Today the Advance GDP data is on the schedule and investors will get yet another test to show off their ability to wish away bad information. This because the Advance GDP is forecasted to show the U.S. economy shrinking by -1.4%, which would actually be a big improvement on last month�s figure.
The center of the firestorm is surrounded by the debate on what constitutes positive news. The market is the barometer certainly, but there is a difference between short term trading and long term endeavors. The rally from the equity markets the past two weeks has been large but it must be taken into context. The USD has been walking lock in step with the results from the likes of Wall Street. As risk appetite has increased among investors the USD has found itself trading to the weaker side of its range against the EUR and particularly the GBP. Interpretation of data from corporate quarterly earnings or economic data such as today�s Advance GDP, are the critical factors affecting the marketplace for investors. Equities tend to be forward looking � with good reason � and thus the question is what type of recovery we are going to see one year from now. Some traders seem to be speculating on a belief that this ugly stretch is going to be passed quickly. The Advance GDP number and how it impacts the equity markets will certainly be the focal point for the USD today.
EUR:
The EUR regained much of its value on Thursday that it had lost in the previous two sessions against the USD. The EUR moved better as investors showed a greater desire for risk in the equity markets and the German Unemployment Change number produced a good result of -6K compared to the estimate figure of 44K. Quarterly earnings reports from the European corporate sectors showed mixed results and opinions regarding the economy. However, any negative sentiment that may have been surrounding the EUR from the previous sessions was swept to the side in dollar centric trading, which saw aggressive gains among bourses. Today the European Union will be releasing its Flash CPI figures and it is anticipated to have a number of minus -0.4%, which would be a deflationary outcome. However, the question is if investors will take note of this when they are filling their heads with the lofty gains from the recent equity rally? Also on schedule is the broad Unemployment Rate statistic for Europe and 9.7% is the estimate. The EUR performed well against the greenback yesterday and investors will be in a dollar centric mode once again today.
GBP:
Sterling turned in a strong day as it climbed back to the strong side of its range against the USD after two poor days of trading. The Nationwide HPI showed a gain of 1.3% versus the estimate of 0.3% and this result may have brought about positive sentiment among GBP traders. The U.K. will not be releasing any major data today but the Sterling goes into the last trading day of July having produced five solid months of positive value against the USD. Like its major counterparts the recession still looms above the U.K. economy, but sentiment has been improving and the results from the gains on the FTSE have helped spur the GBP upwards the past couple of weeks.
JPY:
The JPY lost further grown to the USD on Thursday as international stock markets continued to rally. The Asian bourses have shown positive returns for some time with certain markets actually being in a bull mode such as the Shanghai bourse in China. The movement of the JPY and USD remains locked in a risk/reward trading range. Both currencies are considered so called safe havens, however it appears that upon stronger results on the equity markets that the JPY is the currency that tends to give up ground to the greenback.
Written by: Robert Petrucci, Chief Commodity Expert and Forex Analyst
Technical Analysis
EUR/USD:
The pair is now floating between the 1.4055 prices levels to 1.4145 with no distinct direction. The pair made few attempts to breach through the resistance level of 1.4040 but failed. On the daily charts the indicators are giving mixed signal. the range trading appears to be the preferable strategy.
GBP/USD:
The float within the narrowing bullish channel on the daily chart continues without a distinct trend as no significant breach has been made. The pair is now floating between the 1.6203 levels to 1.6573 also the 4 hour chart is giving mixed signals that support the floating of the pair. The traders should wait for a clear break before taking any position.
USD/JPY:
The float within the narrowing bullish channel on the daily chart continues as no significant breach has been made and is now floating between the 95.22 level to 95.72. However the momentum is still bullish supported by the Slow Stochastic that indicate the continuation of the bullish movement within the channel. Going long appears to be the preferable strategy.
USD/CHF:
There is a bullish channel on the 4 hour chart. However this pair is now trading near the upper barrier of this channel, so there may be a slight correction before this pair makes another bullish move. It is important to note that most of the indicators on the daily chart also give a strong bullish signal. Going long with tight stops appears to be preferable.
The Wild Card
Gold:
Gold is now floating with no distinct direction. Both the Daily RSI and the Slow Stochastic are floating in neutral territory. The preferred strategy today will be to wait for clearer signal before taking any position.