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Risk Aversion Turns the Market Over

After the dollar retreated on all fronts, it made a huge comeback in the last 24 hours on fears that the recovery is not near at all.  Review of the turnaround and a look towards the final battle.

Ben Bernanke went to testify in Washington. Despite very careful wording, he expressed pessimism. Recovery isn’t as near as expected. Getting out of the recession will take more time and patience.

US economic indicators contributed to the pessimism:  ADP Non-Farm Employment Change fell by 532K, more than expected. Factory Orders went up only 0.7%, less than 0.9% that was estimated.

ISM Non-Manufacturing PMI disappointed by scoring 44 points instead of 45. On Monday, the complementary figure,  ISM Manufacturing PMI was better than expected.  All in all, Wednesday afternoon consisted of bad news.

Forex Trading Impact

And what happens on bad news? Dollar goes down. Wrong! The risk  factor is still strong, and yesterday’s bad American figures sent traders to the “safe haven” currency – the US dollar. And now, the market is stabilizing for the final battle of the week.  

This trend continued till the last hours. It erased the gains that were built up during the week and reached a peak on just before these bad news. The popular EUR/USD fell from 1.4330 to 1.4080 (250 pips) before stabilizing somewhat higher.

Pound is Pounded

The impact on the British Pound was stronger – the Pound bounced off the resistance line at 1.6670 down to 1.6115. Yup, 550 pips! GBP/USD raised its head when Halifax HPI in Britain showed an unexpected big gain – it rose from by 2.6% instead of falling by 1%.

The BoE decided to leave interest rates unchanged, and to to keep the Quantitative program unchanged. Traders were expecting more, and the Pound fell back. GBP/USD currently trades at 1.6223.

Tomorrow, we’ll see if Britain also suffers from deflation. PPI input will draw attention. For more on the Pound’s week, check out my post:  Britain’s Got Talent.

Australia inTrade Deficit

After an excellent GDP result and a continued high interest rate, Australian Trade Balance disappoints. Instead of showing a squeeze in the surplus, the balance turned negative.

Together with the dollar strength, AUD/USD retreated to levels that haven’t been seen this week. The Aussie went under 0.79 before climbing back to 0.80. For more the Australian dollar this week, read:  Will Australia go Down Under? Aussie Outlook

Loonie Surrenders

Yesterday I mentioned how the loonie stays behind when other currencies “celebrate” on the US dollar. 1.08 proved to be a strong support line for the USD/CAD. After bouncing, the pair went as high as 1.1150.

Today, Building Permits fell less than expected – only 5.4%. The interest rate stayed unchanged- as expected. The statement by Mark Carney’s BOC sent a message that rates will remain low. The Bank of Canada is even worried by the strength of the local dollar. 1.08 will serve as a support line for a long time…

To keep the Canadian dollar low, also Ivey PMI disappointed – it fell below the critical 50 mark, contrary to early expectations. Ivey PMI is at 48.4.

Tomorrow, Canadian employment figure will shake the loonie. For more on the loonie’s week, check out:  Loonie At Parity? Canadian Dollar Outlook

Forex Trading week closure

After the fall of the dollar and it’s recovery, the dollar is now retreating again – but cautiously. Tension is mounting towards tomorrow’s king – Non-Farm Payrolls. This will be the final battle of the dollar vs. the rest this week.

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.