There is no stopping the USD decline with currencies still very well bid against the buck even in the face of some equity declines on Wednesday. It appears as though the FX market is once again leading the way and only it will determine when the appropriate time is for a shift in the construct and direction of the markets. The Euro has easily held above the 1.5000 mark to suggest some more bullish continuation, with the single currency rallying to a fresh yearly high by 1.5060 in Asia. Meaningful highs are rarely made in Asian trade and as such, market participants can be sure to expect a retest and break of this level over the coming hours. More often than not, the pattern has been one in which the US session determines the high and lows.
There has also been a deluge of media attention put towards the demise of the Dollar and although this often warns of a USD rally, the strength of the current trend has been intense enough to even ward off this strong contrarian indicator. Fundamentally, there have been a number of important developments this week that should have supported the greenback, but a barrage of USD supportive comments from officials across the globe, active intervention by several central banks, a Brazilian government that imposed new taxes on Real denominated investment, a Canadian central bank that expressed extreme discomfort with the USD depreciation, and a pullback in equity prices on Wednesday, all have failed to have any impact. USD bears are in full control, with price action giving them no reason to exit their positions. Over the past several weeks, there have no real price reversals that would have USD bears contemplating a potential exit from their positions. For now, the key level to watch will be 1.4830 in Eur/Usd. Until this level is broken, there can be no talk of a Dollar rally.
Overnight, the calendar was light, with only some Australian import-export data being released. However, while the data is only categorized as second tier, the fact that it came in weaker than expected cannot be a welcome development for an RBA that has recently gone ahead and raised rates. This data comes one day after an Aussie minister was critical of the Aussie rate and the detrimental impact that the currency was having on exports. Nevertheless, the single currency remains very well bid on a strong investor risk appetite and favorable yield differentials.
Looking ahead to the European calendar, German PMI is due at 7:30GMT, followed by the more important German IFO at 8:00GMT. Eurozone PMI is also due out at 8:00GMT, with all eyes then shifting to the UK at 8:30GMT. UK GDP is the main release, with index of services and BBA loans also due. Finally, Eurozone industrial new orders caps things off at 9:00GMT. At present, US equity futures point to a firmer open, while commodities are also bid.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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