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US Dollar Correction May Extend on Supportive Fed Rhetoric

US Dollar Correction May Extend on Supportive Fed Rhetoric

Ilya Spivak, Head Strategist, APAC

The US Dollar may extend an overnight recovery following yesterday’s sharp selloff as comments from Fed officials rekindle QE3 reduction expectations.

Talking Points

  • US Dollar May Bounce as Fed-speak Reboots QE Reduction Bets
  • Aussie, NZ Dollars Correct Sharply Lower After Yesterday’s Gains

The US Dollar mounted a spirited recovery in overnight trade, adding as much as 0.4 percent on average against its leading counterparts. The move appears to be a retracement in the context of yesterday’s aggressive selloff, which yielded the largest single-day decline in close to a year. This followed a dismal ISM Manufacturing print that weighed against Federal Reserve QE reduction bets, sending the greenback lower and offering a boost to risk appetite.

Looking ahead, a quiet economic data docket in European and US trading hours puts the spotlight on scheduled commentary from Federal Reserve policymakers Esther George and Sarah Bloom Raskin. Both are current members of the rate-setting FOMC and traders will be keen to parse their commentary as expectations for a tapering of QE asset purchases continue to evolve. Between Ms. George and Ms. Bloom Raskin, the rhetoric on offer is likely to fall on the neutral-to-hawkish side of the policy spectrum. That may weigh on sentiment and further support the US unit. Technical positioning points to a broader bearish outlook however.

The Australian Dollar and New Zealand Dollar took a beating in Asia having outperformed over the preceding 24 hours, underscoring the corrective nature of Asia-session price action. Indeed, the key bit of event risk on the day – the RBA interest rate decision – didn’t produce adiscretely significant response from price action. The Japanese Yen likewise came under selling pressure as the Nikkei 225 stock index mounted a sharp rebound, weighing on the local haven unit. Japan’s equities benchmark added over 2 percent, putting in for the strongest single-day performance in close to a month.

Capitalize on Shifts in Market Mood with the DailyFX Speculative Sentiment Index

Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

23:01

GBP

BRC Sales Like-For-Like

1.8%

1.3%

-2.2%

23:50

JPY

Monetary Base Avg Amount (YoY)

31.6%

-

23.1%

23:50

JPY

Monetary Base End of Period

¥159.2T

-

¥155.3T

1:30

AUD

Current Account Balance (A$)

-8.5B

-9.0B

-14.8B

1:30

AUD

Australia Net Exports of GDP

1.0%

0.8%

0.6%

1:30

JPY

Labor Cash Earnings (YoY)

0.3%

-

-0.9%

4:30

AUD

Reserve Bank of Australia Rate Decision

2.75%

2.75%

2.75%

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

8:30

GBP

PMI Construction

50.8 (A)

49.4

Medium

9:00

EUR

Euro-Zone PPI (MoM)

-0.6% (A)

-0.2%

Medium

9:00

EUR

Euro-Zone PPI (YoY)

-0.2% (A)

0.6%

Medium

Critical Levels:

CCY

SUPPORT

RESISTANCE

EURUSD

1.2985

1.3137

GBPUSD

1.5202

1.5409

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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