Dollar Stronger After Volatile Trading Day
Dollar Stronger After Volatile Trading Day
Overall The currency market endured a volatile day of trading on Thursday as S&P futures fluctuated overnight, global equity markets played tug-o-war and economic releases gave further insight to the U.S. economy. Currencies that are influenced by equity markets, the Japanese yen and Australian dollar shifted direction many times overnight as Asian markets pared gains after the release of Chinese GDP and European markets were cautious in anticipation of earnings from JPMorgan ahead of this morning’s opening bell. U.S. economic releases saw unemployment claims and the Philly Fed post better than expected numbers but housing starts and building permits reminded traders that the housing dilemma is still not over. At the end of the day, the dollar stood tall, once again, closing higher against most of the other currencies although earlier gains were pared after the economic releases.
The Euro (Eur/Usd) The euro continued its recent downward trend that started in mid March, losing another 50 pips on the day and closing below the 1.3200 level. Traders don’t seem to be totally convinced that the ECB will not drop interest rates below 1% despite strong ‘hinting’ that will be the case recently. Euro-zone industrial production dropped in February by 2.3% but that was less than had been expected. Annually, production was down 18.4%, the largest annual drop on record.
The Pound (Gbp/Usd) For the first time in four days, cable closed the trading day lower despite hitting the highest level in almost three months. After failing to close above the 1.5000 level on Wednesday, the pair pushed higher during last night’s Asian session but weakened as we heading into the London open. The pound has held firm against dollar strength this week, until today, and managed to pare about 80 pips of losses during the U.S. session. There were no economic releases from the U.K. this morning and the U.K. calendar is clear for the remainder of the week.
The Aussie (Aud/Usd) The aussie traded in a wider than average 180 pip range on Thursday, influenced by global equity markets trading in volatile fashion and gold prices moving lower by more than $18 an ounce on the day. The pair lost approximately 80 pips on the day and closed just above the 0.7200 level. The Australian dollar weakened after it was announced that China’s economy expanded at the slowest pace in 10 years, bring the global economic recovery into question. Asian equity markets pared gains on the news, the market became risk averse and traders sold higher yielding assets and moved to safety.
The Cad (Usd/Cad) The cad has been in a downward trend since March 10th and despite the dollar strengthening against its Canadian counterpart on Thursday, continues on that path. The cad strengthened for only the 3rd day in 13 helped by a lack of consistency in the equity markets. Crude oil prices rose on Thursday but continue to trade below the pivotal $50 a barrel level. The pair gained 50 pips on the day, unable to hold above the 1.2100 level, after trading in a 165 pip range. Canadian manufacturing sales rose for the first time in seven months, gaining 2.2% in February, beating analysts’ expectations. Canada will release CPI numbers at 07:00 EDT tomorrow morning.
The Swissy (Usd/Chf) The dollar strengthened against the Swiss franc on Thursday as the greenback strengthened in the broad market. Recent U.S. economic releases and comments from Fed officials has given hope that the economic downturn in the U.S. is slowing, the latest being Wednesday’s release of the Fed’s Beige Book, which has curbed demand for the franc. The pair traded in a relatively tight range and closed the day higher by approximately 40 pips. The Swiss producer price index decreased in March by 0.5% from February, more than analysts’ had expected. Swiss National Bank Chairman Roth will give a speech at 04:00 EDT tomorrow morning, and given that the SNB has intervened in the currency market recently, should be paid attention to.
The Yen (Usd/Yen) The yen endured a volatile 24 hours of trading as global equity markets moved back and forth throughout the day and the Japanese currency responded in kind. The pair moved higher during the opening hours of last night’s Asian session but quickly reversed course and moved significantly lower during the afternoon session and through the midpoint of this morning’s European session. News that China’s economy expanded at the slowest pace in 10 years called into question the global economic recovery, causing traders to become risk averse, and pushing Asian equity markets and U.S. futures lower. The pair pared losses during the U.S. session as equity markets moved higher and closed the day in positive territory. On the day, the pair moved in a range of 100 pips but closed lower by only 10 pips.
The Financial Sector and Dollar Index Review: Solid Volume, Solid Trade, Low Value
In trade on Thursday the XLF, the financial sector ETF, gained 0.12 points (1.11%) to trade at 10.497on decent volume; 216,000,000 ETF’s changed hands, close to the daily average. The banking sector was moved higher on earnings expectations and news that the stress test results for the banking industry are to be released in early May. Those reports will do one of two things; drop Wall Street by three or four times the daily average, or confirm that at $11 a share the XLF is on sale, and very likely rally the whole equity market.
Dollar Index: Still Holding In There
The index refuses to give up ground to the major pairs, and is stubbornly holding values above major support at 84.00. Even on days of equity and oil buyer the greenback is finding buyers, but cracks may be appearing in the fact that Treasury auctions and Fed buying should start to reduce naturally the value and appeal of the dollar in the eyes of its holders. The last ten days of trade have seen the index tested support and resistance, with not one of the major pairs able to break either way. It seems not to be if the de-valuation comes, just when, but right now the speculative interest in long dollar positions is fighting to maintain status quo.
Wall Street News: S&P Holds Major Price Point, Dollar May React
Banking stress test results were announced for release in May, something the financial sector has braced itself for, but also ignored to the greater degree, in trade on Thursday. The financial sector found bids in Wall Street trade, and helped the technology sector ride out earlier negative sentiment. This allowed the S&P to finish another day riding high going into the close, and set up another Asian session that has the chance to push forward and move the Nikkei up to possibly test 9000 again.
Two positive Wall Street closes have allowed resistance areas to be tested on the global equity markets, but have been negated by the S&P’s cash market to easily follow through on positive global sentiment in early Wall Street trade. It seems as though the NYMEX oil markets have to close at 14:30 EDT before momentum comes into U.S. stocks, and by default into Usd selling. All of the time that stocks fail to build strongly intra-day sellers of the greenback are going to be challenged in being able to get the dollar index down to test support at 84.00.
The S&P moved from -0.6% to plus 1.7% on Thursday in a period of trade that lacked volume but had momentum. A major price area was tested and held at 860, and leads the way for risk tolerance to now move speculative interest into the short side of the Japanese yen, into long oil trades, and possibly into the buying of aussie, cable, and euro.
The moves on Thursday took the S&P 28% higher than the 12 month lows, mainly on the back of the efforts put forth to re-value mark-to-market accounting, U.S. stimulus aid, and time and patience from investors looking to now build portfolios who are prepared to get on long equities in very specific areas. The volume is still light, but the volatility index is reducing its intensity and allowing the markets to move higher and hold at the moment.
Once mutual funds release the tidal wave of cash on deposit, which they will have to do in numbers at some stage from now until their year-end in October, the 1250 area on the S&P may not seem as far away as it does at present. Whether these are bear market rallies or the beginning of a new bull run is not of importance; neither will reveal itself until the main movers are already in place. By then all that is left is for the herd to stampede.
The smart money looks to already be positioning, and will need the herd to get moving just in time for them to sell their first leg of profit to. There is no bell to signal bulls or bears have the day, just sentiment and a knowledge that major support areas getting taken out on light volume equate to one thing; distribution of short positions ahead of the next leg up. If the bottom has already been put in, something that nobody actually knows, it could signal a move out of the major forex pair’s 4 hour channels, and into a trending phase of market activity that gets the Federal Reserve what they want; a devalued Usd.
Volume levels were light but there was no reason it seemed to stand in the way of the long momentum that came from Hewlet Packard’s earnings, something that helped the Nasdaq move higher. A linear regression channel is acting as support at 830 on the S&P, and was holding as resistance at 860, a price area that most trade desks would now be happy to hold at so that a move to 920 could happen.
On Thursday afternoon the NYSE posted gains that averaged 1.5%. The DOW was on 8125 after a gain of 95 points (1.3%) while the S&P traded at 865, higher by 1.5%, and the technology-heavy NASDAQ traded at the 1670 area, a 60 point move in two days, after moving up by over 40 points (2.7%).
The Dax 4609 (+1.3%), FTSE 4052 (2.1%), and Cac 40 3038 (1.7%) all gained in a synchronized move higher in European trade, and never looked back, even in the face of some early U.S. selling pressure.
Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com
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