Forex Traders to Focus on U.S. Initial Claims and Equities

With Fed Chairman Bernanke’s testimony out of the way, the Forexmarkets will be focusing on economic reports the rest of the week.Today’s big report is the U.S. Initial Claims.

With Fed Chairman Bernanke’s testimony out of the way, the Forex markets will be focusing on economic reports the rest of the week. Today’s big report is the U.S. Initial Claims. Traders expect this report to continue to show an increase in claims. This was backed up by commentary by Bernanke earlier this week when he stated that unemployment is still a major deterrent to a full economic recovery.

U.S. equity markets will also act as a guide for the Forex markets. Better than expected earnings this morning from Ford is putting a firm tone on the market but the Forex markets haven’t really responded. It may take a new high for the week in the equity markets to trigger another break in the U.S. Dollar. 

The recent rally in the EUR USD has been driven by gains in the equity markets. Investors have been exiting the safer currencies during this time of stock market expansion. This week’s gains have for the most part been limited by the choppy action in equities, preventing the Euro from surging to the upside. The selling pressure that hits the Euro each time the market approaches the 60 day high could be an indication that equity markets are getting close to a top.

Fed Chairman Bernanke’s comments this week regarding inflation have also put a lid on the Euro. In his testimony before the Senate Banking Committee, Bernanke said that the Fed has the tools to keep inflation at bay. On the other hand, Bernanke provided a little fuel for a Euro rally by stating that the economy’s recovery will be gradual because of rising unemployment. 

The British Pound is trading better this morning which is probably profit-taking ahead of tomorrow’s Second Quarter Preliminary GDP. The Pound has been feeling downside pressure most of the week on the thought that the economy is still weakening and that the U.K. doesn’t have the room to expand the budget.

The Dollar is stronger versus the Japanese Yen. The overnight strength in the equity markets is pressuring the lower yielding Yen in favor of higher risk investments.

Results are coming in mixed for the Canadian Dollar. A stronger stock market coupled with a firm crude oil market will most likely drive the USD CAD sharply lower. If crude oil stays flat but the stock market rallies then look for a sideways to lower trade.