The US dollar and Japanese yen both took a hit on Monday and ended the day as the weakest of the majors thanks to a surge in risk appetite that took the DJIA and S&P 500 up more than 2 percent. Economic data certainly did not drive these moves, as the release of the US budget statement was disappointing with the deficit hitting $94.3 billion in June, bringing the deficit for the fiscal year to $1.1 trillion. Instead, FX carry trades and equities were driven higher as speculation mounts that Goldman Sachs earnings for the second quarter will indicate that the firm made huge profits, painting a brighter outlook for the financial sector as a whole. While a large increase in profits is sure to ignite significant risk appetite, these optimistic expectations are bordering on the extreme, creating potential for disappointment and high volatility. This makes it important for traders to be careful with the amount of capital they put on the table.
Forex traders may also notice choppy price action upon the release of US advance retail sales, which are projected to rise 0.4 percent for the month of June, which would mark the second straight improvement, and excluding autos, retail sales are anticipated to increase by 0.5 percent. However, there is potential for a worse-than-expected result, as the International Council of Shopping Centers (ICSC) said that same-store sales tumbled 5.1 percent in June from a year earlier, which was the sharpest decline since March. All told, a negative reading has the potential to stoke risk aversion in the markets, and thus, US dollar strength. On the other hand, surprisingly strong results could offer a boost to FX carry trades and equities.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from FXCM.
