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FOREX: US Dollar Falls Despite Supportive Data – What is needed for USD Bounce?

FOREX: US Dollar Falls Despite Supportive Data – What is needed for USD Bounce?

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  • US Dollar Falls Despite Supportive Data – What is needed for USD Bounce?
  • Euro To Trade Heavy As Inflation Cools, Encouraging ECB To Delay The Exit Strategy Further
  • British Pound Rally Could Be Short-Lived As Household Confidence Deteriorates Further
  • Japanese Yen Falls on Sea of Green Across Global Equity Markets
  • Australian Dollar Rallies Against Japanese Yen for 9th Consecutive Trading Day

US Dollar Falls Despite Supportive Data – What is needed for USD Bounce?

The US Dollar fell against all major currencies except the similarly downtrodden Japanese Yen, sinking on impressive gains in the Dow Jones Industrial Average and broader ‘risk’. A solid ADP Employment Change report should have arguably provided a Greenback boost; private sector jobs grew by a net 201,000 through March and set the stage for a strong US Nonfarm Payrolls report on Friday. Yet traders have shown little interest in the carry trade funding currency. In fact, a benchmark G10 FX Carry Trade Index has now rallied for nine consecutive trading days and remains narrowly short of pre-financial crisis highs. Given such strong performance in global ‘risk’, a sustained US Dollar recovery remains fairly unlikely.

Tomorrow’s US Initial Jobless Claims data should shed further light on the domestic labor market and further shape expectations for Friday’s key NFPs result. Current consensus forecasts for Jobless Claims point to continued improvements, while analysts predict that the US economy added a net 190,000 jobs in March. Given recent market focus on Federal Reserve monetary policy, strong jobs data should theoretically produce US Dollar rallies. Yet continued declines emphasize that we need to see signs of life before advocating USD-long positions. Such a reversal seems especially unlikely amidst fresh highs in the S&P 500 and broader risk rallies.

Related:Discuss the Dollar in the DailyFX Forum

Euro To Trade Heavy As Inflation Cools, Encouraging ECB To Delay The Exit Strategy Further

The rebound in risk certainly helped to prop up the Euro on Wednesday, and the single-currency may continue to retrace the decline from the previous week as investors speculate the European Central Bank to reestablish its exit strategy over the coming months. According to an interview with RT News, ECB board member Lorenzo Bini Smaghi said monetary policy will be gradually normalized over the coming months in order to curb the heightening risk for inflation, but ensured that the central bank will continue to provide ample liquidity across the region as the financial system remains frail. As interest rate expectations continue to prop up the single-currency, the rebound in the EUR/USD may gather pace going into the end of the week, and the pair may ultimately make another run at 1.4300 as it maintains the upwards trend from earlier this year.

However, the Euro could face headwinds over the next 24 hours of trading as Ireland is scheduled to release the results of the commercial bank stress test on Thursday, and the outcome is likely to show an impending need for fresh capital as the banking sector remains under duress. Market participants speculate the EUR 35B set aside by the Irish government will not be enough to meet capital needs as commercial banks remain heavily dependent on central bank liquidity, and the ongoing weakness within the financial system could lead the ECB to delay its exit strategy further as the EU maintain a relaxed approach in addressing the sovereign debt crisis. At the same time, the economic docket for Thursday is expected to show easing price pressures in the Euro-Zone, and the single-currency is likely trade heavy throughout the overnight session as the headline reading for inflation is expected increase at an annualized pace of 2.3% in March following the 2.4% expansion in the previous month.

British Pound Rally Could Be Short-Lived As Household Confidence Deteriorates Further

The British Pound continued to pare the sharp decline from the previous week as the Bank of England showed an increased willingness to normalize monetary policy, and the near-term correction in the GBP/USD may gather pace throughout the overnight trade as interest rate expectations accelerate. BoE board member Paul Fisher said the central bank will lift the benchmark interest rate off the record-low before it looks to unwinding its emergency measures, and went onto say that the MPC does not want to give any ‘confusing signals’ on its exit strategy while speak in Manchester. According to Credit Suisse overnight index swaps, market participants now see borrowing costs in the U.K. rising at least 75bp over the next 12-months, and the exchange rate may continue to consolidate going into the end of the week as the central bank retains a hawkish outlook for future policy. However, as the GfK consumer confidence survey is expected to weaken further in March, another drop in household sentiment is likely to produce a bearish reaction in the British Pound, and the exchange rate may trend sideways in the days ahead as price action struggles to push back above 1.6100.

Japanese Yen Falls Notably on Sea of Green Across Global Equity Markets

The Japanese Yen finished lower against the similarly downtrodden US Dollar for the fifth consecutive trading day, falling on a sea of green across global equity markets. An ostensibly busy Japanese economic calendar is unlikely to force major moves out of the JPY; the data on tap has become far less relevant in the aftermath of natural disaster in Japan. Watch equities and broader ‘risk’ to judge direction in the Yen.

Australian Dollar Rallies Against Japanese Yen for 9th Consecutive Trading Day

The Australian Dollar closed higher against the Japanese Yen for the ninth-consecutive trading day—the first such occurrence since April, 2007 and a clear sign of strong risk appetite across financial markets. It was at that stage in 2007 when the AUDJPY paused and consolidated before making a strong push beyond the 100 mark. We would hardly advocate taking a short position into such impressive strength, but the AUDJPY has only had 10-consecutive-day rallies twice in the past 10 years.

For Real Time Forex News, visit: http://www.dailyfx.com/real_time_news/

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

Next 24 Hours

Currency

GMT

Release

Survey

Previous

Comments

AUD

0:30

Building Approvals (MoM) (FEB)

4.0%

-15.9%

Big changes in MoM and YoY year data could signify an uptrend in building approvals

AUD

0:30

Building Approvals (YoY) (FEB)

-12.8%

-24.8%

AUD

0:30

Private Sector Credit (MoM) (FEB)

0.3%

0.3%

Credit remains on a steady uptrend despite RBA tightening.

AUD

0:30

Private Sector Credit (YoY) (FEB)

3.2%

3.3%

JPY

1:30

Labor Cash Earnings (YoY) (FEB)

0.3%

0.2%

Spending ability of Domestic consumers is projected to slightly increase

NZD

2:00

NBNZ Activity Outlook (MAR)

36.6

NBNZ Data will give an accurate barometer of NZD economic strength

NZD

2:00

NBNZ Business Confidence (MAR)

34.5

JPY

5:00

Housing Starts (YoY) (FEB)

7.4%

2.7%

A strong increase in Housing Starts will reflect a healthy and much needed rate of growth for Japan’s construction sector

JPY

5:00

Annualized Housing Starts (FEB)

0.849M

0.847M

JPY

5:00

Construction Orders (YoY) (FEB)

-10.70%

A better than expected number can benefit Japanese economy through the strong multiplier effect created with housing expenditure

GBP

6:00

Nationwide House Prices s.a. (MoM) (MAR)

-0.1%

0.3%

Contraction of British Housing sector is unfavorable for GBP

GBP

6:00

Nationwide House Prices n.s.a. (YoY) (MAR)

-0.6%

-0.1%

EUR

7:55

German Unemployment Change (MAR)

-29K

-52K

German unemployment expected to fall further amidst healthy growth

EUR

7:55

German Unemployment Rate s.a. (MAR)

7.2%

7.3%

EUR

9:00

Euro-Zone Consumer Price Index Estimate (YoY) (MAR)

2.3%

2.4%

Remains above ECB target of 2%

CAD

12:30

Gross Domestic Product (MoM) (JAN)

0.5%

0.5%

GDP expected to have expanded at healthy pace

CAD

12:30

Gross Domestic Product (YoY) (JAN)

3.2%

USD

12:30

Initial Jobless Claims (Mar-26)

380K

382K

Jobless claims continue to trend lower, pointing to strong NFP’s on Friday

USD

12:30

Continuing Claims (Mar-19)

3705K

3721K

USD

12:30

Chicago Purchasing Manager (MAR)

69

71.2

At 23-year highs through February

USD

13:45

Bloomberg Consumer Comfort (Mar-27)

-48.9

Remains depressed on jobs, gas price

USD

13:45

NAPM-Milwaukee (MAR)

63.0

Trending towards multi-year highs

USD

14:00

Factory Orders (FEB)

0.5%

3.1%

Order growth remains strong

AUD

22:30

AiG Performance of Manufacturing Index (MAR)

51.1

Important to watch for further bounce

JPY

23:50

Tankan Large Manufacturers Index (1Q)

6

5

Japanese economic data loses some relevance as delay in survey results do not reflect post-natural disaster growth and sentiment.

JPY

23:50

Tankan Non-Manufacturing Index (1Q)

2

1

JPY

23:50

Tankan Large Manufacturers Outlook (1Q)

2

-2

JPY

23:50

Tankan Non-Manufacturing Outlook (1Q)

0

-1

JPY

23:50

Tankan Large All Industry Capex (1Q)

1.8%

2.9%

JPY

23:50

Loans & Discounts Corp (YoY) (FEB)

-4.4%

Currency

GMT

Upcoming Events & Speeches

USD

14:00

Fed's Lacker to speak at 2011 Credit Symposium in Charlotte

USD

16:30

Fed’s Tarullo to speak at 2011 Credit Symposium in Charlotte

USD

18:05

Fed’s Pianalto Speaks on Economic Outlook, Oil Prices

SUPPORT AND RESISTANCE LEVELS

CLASSIC SUPPORT AND RESISTANCE - 18:00 GMT

Currency

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

Resist 2

1.4445

1.6750

89.00

1.0000

1.0275

1.0600

0.8230

127.60

146.05

Resist 1

1.4250

1.6430

86.00

0.9775

1.0000

1.0335

0.8000

120.00

140.00

Spot

1.4126

1.6075

82.96

0.9188

0.9717

1.0320

0.7623

117.18

133.36

Support 1

1.4000

1.5750

80.00

0.9000

0.9700

0.9600

0.6850

103.80

125.00

Support 2

1.3700

1.5315

75.00

0.8800

0.9500

0.9375

0.6585

100.00

119.00

CLASSIC SUPPORT AND RESISTANCE EMERGING MARKETS 18:00 GMTSCANDIES CURRENCIES 18:00 GMT

Currency

USD/MXN

USD/TRY

USD/ZAR

USD/HKD

USD/SGD

Currency

USD/SEK

USD/DKK

USD/NOK

Resist 2

13.8500

1.6575

7.4025

7.8165

1.3650

Resist 2

7.7500

5.7800

6.2750

Resist 1

12.5000

1.6300

7.3500

7.8075

1.3250

Resist 1

7.5800

5.6625

6.1150

Spot

11.9316

1.5520

6.8246

7.7838

1.2618

Spot

6.3244

5.2794

5.5748

Support 1

11.7200

1.5300

6.7600

7.7490

1.2500

Support 1

6.2850

5.2185

5.5550

Support 2

11.4400

1.4725

6.5575

7.7450

1.2000

Support 2

6.1250

5.1000

5.5125

INTRA-DAY PROBABILITY BANDS 18:00 GMT

\Currency

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

Resist. 3

1.4288

1.6238

83.99

0.9294

0.9804

1.0453

0.7722

118.84

135.24

Resist. 2

1.4248

1.6197

83.73

0.9267

0.9783

1.0420

0.7698

118.42

134.77

Resist. 1

1.4207

1.6156

83.47

0.9241

0.9761

1.0387

0.7673

118.01

134.30

Spot

1.4126

1.6075

82.96

0.9188

0.9717

1.0320

0.7623

117.18

133.36

Support 1

1.4045

1.5994

82.45

0.9135

0.9673

1.0253

0.7573

116.35

132.42

Support 2

1.4004

1.5953

82.19

0.9109

0.9651

1.0220

0.7548

115.94

131.95

Support 3

1.3964

1.5912

81.93

0.9082

0.9630

1.0187

0.7524

115.52

131.48

v

Written by: David Rodríguez and David Song, DailyFX Research Team

To receive John’s reports via email or to submit Questions or Comments about an article; email jkicklighter@dailyfx.com

The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. Forex Capital Markets, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. Forex Capital Markets, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. Forex Capital Markets, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.

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