USD liquidation amplified by thin summer conditions

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It was another quiet night in the world of currencies through the overnight session. As a lack of news or data saw most major pairs hold at levels established during yesterday’s American session.

Yesterday’s American session saw a rally in Gold, plus extremely disappointing Pilly Fed results take a massive bite out of the Greenback mid-session.  Bets on physical demand saw Gold break through resistance at $1,350.00/oz for the first time since June. This prompted stop loss related short covering and accelerated the rally though $1,360.00/oz. Meanwhile goodwill gained by a strong weekly claims and monthly CPI released early yesterday morning was wiped out by the Philly Fed Manufacturing Index. The survey of manufactures posted a disheartening 9.3 versus expectations of 15.0 according to a Reuters survey. The mixed data cast doubt on investor expectations for a September Taper, creating a degree of turmoil in what had otherwise been calm conditions.

Currencies took exception to the mixed data and Gold move, resulting in a liquidation of USD, which was amplified by thin summer conditions. By the time the dust had settled, the big winners on the day were the Japanese Yen, the Euro, and the Sterling. The Dollar Index posted a near big figure loss, closing at 80.18 after trading as high as 81.94. Trading this morning has the index around 81.25 following the quiet overnight session.

One of the best performing currencies in the last 24 hours was the British Pound, the Cable advanced 1.5 big figures yesterday following the USD sell-off and has managed to hold onto those gains overnight. The pair is currently closing in on its 2-month high at 1.5750. The GBP also outperformed the Euro in the last 24 hours, extending the EURGBP slide to 8 consecutive sessions. The sterling has garnered support this week from a series of constructive economic releases plus sentiment that earlier forward guidance from the Bank of England painted a picture that was more dovish than reality.

Interestingly the Canadian unit mostly sat out yesterday’s activity as buyers of the USDCAD successfully defended support around 1.0300. Overnight trading saw a continuation of subdued activity defined by a narrow 40-pip range. The pair has traded in at current levels all week as Summer Doldrums grip tightly. Broad channel support has contained the USDCAD in recent weeks and despite ongoing softness in the USD. The environment of Tapering in the United States and the concept of an American recovery have kept the Loonie in check.

Speaking of the Loonie, Canadian Manufacturing Sales for the month of June were released early this morning. Expectations had been for +0.5%, however the actual number was -0.5%, while disappointing markets seem to have shrugged the data off. The Canadian unit is softer post data, however only slightly and remains inside of recent ranges. US Building permits were also released early this morning and were in line with expectations at 0.94M. American Consumer Sentiment numbers are slated for later today, expectations are for 85.5, a stronger result could offer good support to the USD, while a meaningfully weaker outcome could see another leg down for the Greenback.

Further reading: EURUSD: Upside Pressure Remains With Eyes On The 1.3400 Level.

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About Author

David Starkey is a currency options dealer and market analyst for Cambridge Mercantile Group. A fascination with the everyday impact of globalization on society led David to pursue a degree in International Business from the University of Victoria. From there Forex was a natural fit. He has worked as a currency trader, risk manager, and hedging expert in both Canada as well as the United States for several non-bank brokers. Cambridge Mercantile Group.

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