Better Than Expected U.S. Economic News Boosts Dollar

The U.S. Dollar reversed early session weakness and surged to the upside following the release of better than expected U.S. economic news.

The U.S. Dollar reversed early session weakness and surged to the upside following the release of better than expected U.S. economic news.

This morning’s ADP Employment Report showed that fewer jobs were lost during January. This lent credibility to the notion that the economy is improving and that Friday’s Non-Farm Payrolls Report may actually show positive jobs growth.

January’s ISM Non-Manufacturing Index crossed the 50 marker indicating that momentum was turning to the upside.

Traders reversed the course of the Dollar, indicating that investors were shifting their focus away from risk and on improvement in the U.S. economic outlook. Global currency markets sold off as demand dropped for higher yielding currencies. Both reports supported the Dollar because they provide the Fed with more information needed to begin raising interest rates.

Thin trading conditions continue to highlight the Forex markets ahead of tomorrow’s Bank of England and European Central Bank policy announcements. Trading is expected to continue to be muted following these two central bank meetings as traders will then begin adjusting positions in front of the U.S. Non-Farm Payrolls Report.

The EUR USD reversed course after testing a minor 50% retracement level at 1.4023. Today’s weakness is a pure economic play. The release of upbeat U.S. reports supports a stronger economy. The recent rise in the Euro was attributed to easing tensions. On Thursday, the European Central Bank is expected to announce that interest rates will remain steady.

The GBP USD spiked to the upside last night on the news that U.K. consumer confidence rose more than expected. Speculators have also been driving this market higher on the notion that the Bank of England members will provide a more hawkish opinion on the economy in tomorrow’s policy statement. Today’s stronger U.S. economic reports are putting pressure on the British Pound at the mid-session. Downside momentum was strong enough to push this market through the first downside target at 1.5960.

The USD JPY is rallying sharply higher. Improvements in the U.S. jobs and non-manufacturing sector have encouraged traders to focus more on the recovering U.S. economy rather than the weaker Japanese economy. Earlier this morning, the USD JPY tested support at 90.03 before turning around. The next upside target is 91.45.

The stronger U.S. economy and the weaker Euro are helping to put pressure on the Swiss Franc, triggering a rally in the USD CHF. Last night, a key 50% level at 1.0504 held following a test. Upside momentum is strong enough to trigger a rally back to the recent high at 1.0642.

The USD CAD is rallying sharply higher following a sell-off in commodities, led by weaker gold and crude oil. Falling demand for higher yielding assets is also putting pressure on U.S. equity markets. The short-term charts indicate a rally to 1.0633 to 1.0653 are the next likely upside targets.

A drop in demand for higher risk assets is helping to pressure the NZD USD. The current short-term range sets up a likely retracement to .7072 to .7054.

The AUD USD is weakening after stronger U.S. economic reports drove traders into the Dollar. Yesterday’s low is still holding, but today’s friendly economic news moves the Fed closer to raising interest rates. This is pressuring the Aussie since a hike in U.S. rates will tighten the interest rate differential between the two countries.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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