Beware an increasingly busy calendar for the USD
The Euro (Currency:EUR) remains the currency to beat on the global FX space. Recent strength means the outlook for the Euro Dollar exchange rate today remains bullish.
According to UBS analyst Geoffrey Yu technicals confirm momentum lies with the shared currency:
"With the bull trend intact as reflected by the MACD above its zero line, potential is for the pair to move above 1.3302 to test the key resistance at 1.3417. Support is at 1.3184.
US dollar volatility forecasted to increase
Boris Schlossberg at BK Asset Management warns we could be in for a period of heightened US dollar volatility:
"Before the FOMC statement at 18:00 GMT, the currency market will get a glimpse of the ADP data and the US Q2 GDP results. The market essentially expects to see the same readings from the ADP as the month prior, but if there is significant deviation either way the greenback could react violently.
"An ADP print of 125K or less would likely cause a further selloff in USD/JPY with the pair possibly testing support at 97.00 as hopes of tapering will fade fast."
US Federal Reserve remains ultimate driver of USD direction
Moving past the ADP numbers we are then faced with the US FOMC which is the ultimate driver of financial market direction at present.
Richard Driver at Caxton FX says:
"All eyes on the Fed statement for the direction from here.
"We still believe that tapering QE3 in the US Federal Reserve’s mid-September meeting is on the cards but we would not be surprised to see the Fed re-emphasise its “low rates for longer” message, particularly in light of US GDP data which is likely to reveal growth was weaker in Q2 than in Q1."
And over in Euroland: Inflation and employment data
Not forgetting the Eurozone side of the equation:
"The euro has been given a leg-up by some improved German and Italian unemployment data this morning, which means that until this afternoon’s flurry of US data, the euro will likely push higher. This pair is approaching $1.33," says Driver.
There was other data that has been largely ignored by currency traders.
The Euro-zone unemployment rate remained unchanged at an all-time high for the fifth consecutive month, possibly supporting the claim that the economy has bottomed.
The unemployment rate was reported at 12.1% for June, beating expectations for the rate to rise to 12.2%, as the rate for May was revised lower to 12.1%.
The Euro-zone consumer price index was reported 1.6% higher year over year for the second consecutive month, according to the Eurostat’s initial estimate for July.
The annual inflation rate seems to have rebounded from a three year low rate at 1.2% set in April.