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Expect the USD to continue its move higher

The USD resumed its upward move overnight, after having a mixed day during yesterday’s trading sessions. The USD continued its upward move, despite a CPI release yesterday that showed CPI retreated 1.1% year on year in April from 1.5% in March, which is far away from the FED target of 2%.

Jobless claims release yesterday was disappointing as well moving above the 350,000 level to 360,000. But, the USD still was able to power higher overnight. Why you ask? Easy I reply!!

According to San Francisco FED President John Williams, “the US economy has held up better than expected despite fiscal consolidation“. When asked about the outlook for QE3 and when we could expect it to end, he said that since the US economy has clearly “improved since September”, the FED could begin to reduce the pace of open ended asset purchases, “as early as this summer”. He also went on to say, if “all goes as hoped”, the FED could end the program “sometime later this year”.

When pressed on the subject he did say that it would take “further gain” to meet “substantial improvement” to end the program. He projected US growth to be around 2.5% in 2013, and 3.25% in 2014. Unemployment, which is one part of the economy the FED has indicated is quite important to ending QE3 is expected to move to 7% by the end of 2014 and 6.5 by the end of 2015.

Traders will now look forward to FED Chairman Bernanke’s testimony next week before the Join Economic Committee on May 22. We should expect many questions on the FED’s intentions at this appearance.

In other news overnight, Denmark will not be the next currency adopting the EUR. According to Prime Minister Helle Thorning-Schmidt, a euro referendum “in this election term is unrealistic”. The election term is set to run from 2015 to 2019.

She also stated that Denmark’s choice to “opt-out” from the EURO has shielded the Danish economy from the worst of the crisis in the Eurozone. Denmark, along with Norway and Sweden have become safe havens during all the fiscal turmoil existing in the Eurozone. The last time Denmark voted on joining the EUR was in 2000.

Speaking of the single currency, the EUR remains “offered” testing the support level at 1.2850. Resistance at 1.2890 has held so far during overnight trading. Eurozone leaders are once again taking to the “airwaves” as German Chancellor Merkel said Euro leaders should “coordinate their national policies” which would include investment and labor costs, to survive the economic downturn.

Merkel also said their was a need to coordinate “not just on fiscal policy but on economic policy as well”. French President Hollande was also on the wires, calling for an “integrated economic government” for the Eurozone.

Elsewhere, Canadian CPI is due later this morning, with the consensus showing CPI moved lower year on year to 0.90% from the previous release of 1.00%. USD/CAD has moved higher overnight testing resistance at 1.0250. Support for the USD/CAD is at 1.0180.

See how to trade the Canadian inflation with USD/CAD.

USD strength has also affected the commodity currencies of Australia and Mexico as both currencies reached new lows for the month during the last 24 hours.

University of Michigan confidence number for May comes out later today and is expected to improve to 77.6 for this month after 76.4 in April. Leading Indicators for April is also due and should improve to 0.20% in April from -0.10% in March.

Expect the USD to continue its higher move during the rest of today. We could see some position squaring for the weekend, but the positive tone for the USD should remain.

Have a good day and a great weekend.

Further reading:  Aussie presents a total collapse: a look at 5 Aussie pairs

Matthew Lifson

Matthew Lifson

Matthew Lifson is a Foreign Exchange Trader and a Market Analyst. with Cambridge Mercantile Group.