U.S. Dollar to Range Ahead of Key Central Banks, NFP’s
As noted in yesterday’s Dollar Wrap-Up, the greenback continued its descent, albeit with much less intensity, with Dow Jones FXCM Dollar Index (Ticker: USDollar) falling a meager 0.13% on the session. The losses came as equities closed out yet another stellar performance that saw the Dow, the S&P 500, and the NASDAQ advance 1.36%, 1.44%, and 1.53% respectively. Today’s advance was fueled by a stronger-than-expected print on the June ISM manufacturing report which bested estimates with a read of 55.3, up from a previous print of 53.5. Expectations were for a decline to 52.0. The figure bodes well for the US economy and marks the first piece of economic data for the month of June as traders eagerly await next Friday’s non-farm payroll release. The dollar index closed below the 50-day moving average at 9575 as traders continued to jettison the greenback in favor of higher yielding growth linked assets.
The index remained range bound between the 50% and 38.2% Fibonacci retracements taken from the April advance at 9550 and 9600 respectively. Again we note that 9550 remains a key level for the dollar, with a break below eying subsequent floors at 9500 and 9440. A topside breach sees targets at 9660, 9700, and 9750. The dollar should continue to respect these levels ahead of key events noted on next week’s economic docket.
The greenback fell against three out the four component currencies, highlighted by a 0.45% advance in the Australian dollar. The high-yielding aussie continues to see broad based strength, advancing against all its major counterparts as traders sought exposure to riskier growth linked assets. The euro also closed the week on a positive note as investors continue to price in a rate hike from the ECB next week after President Jean-Claude Trichet reiterated the central bank’s ‘strong vigilance’ stance on inflation. Credit Suisse overnight swaps are factoring a 122% chance of a 25basis point hike next week, with twelve month expectations also climbing to more than 76 basis points.
Next week investors will be lending a keen ear to central banks around the world with rate decisions from the ECB, BoE and the RBA on tap. With the ISM print helping fuel today’s rally ahead of the extended holiday weekend, next week will be a telling one in the FX markets as the greenback challenges key support levels after breaking below a month long ascending channel earlier this week.
Written by Michael Boutros, Currency Analyst for DailyFX.com
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