HS: USD Remains Sought After as Equities Trade Heavy
USD Supported Ahead of Busy Economic Calendar
Trading has been rather quiet throughout much of the European session as investors look for a path in an otherwise directionless market. Generally, traders look to be standing on the sidelines to fully absorb last Friday’s better-than-expected NFP numbers and subsequent USD rally. The smaller decline in U.S. payrolls has added to the belief that the United States is emerging from one of the worst economic downturns in American history. Aside from strengthening the financial relief picture, Friday’s job numbers were also noteworthy due to the vast potency of the Greenback. FX traders and enthusiasts alike have noticed that over the past few months, positive economic data had forced downward pressure on the USD as investors tapped riskier assets as an alternative to the safe-haven dollar. Conversely, last week’s non-farm results flipped the recent risk rally 180 degrees, causing the USD to catch a massive bid alongside the optimistic data. While the dollar’s reaction goes against the recent risk versus security trading theme, it remains to be seen whether the USD has altered its itinerary moving forward. Although it’s far too early to make a call one way or another, important economic data on tap this week should assist with additional clues. The two-day FOMC policy meeting will have top billing, while economic releases such as retail sales and industrial production will also demand attention.
EUR Lags Behind Greenback
While the overnight London session was quiet (to say the least), New York traders entering into the fray for the start of the trading week look poised to shake things up. With U.S. equity futures underwater, expect the Greenback to continue trading with a supported tone as a fresh week of trading kicks off. In terms of the EURUSD, look for 1.4200 to be a key pivot area. While the pair has struggled to trade north of this zone since the dollar’s latest run, the EUR continues to control the duo with a medium-term uptrend. In order to squash this trend and reverse the euro’s fortunes, the EURUSD would have to trade south towards the 1.40-level. Supporting the euro on the downside are a couple key 61.8% Fibonacci levels. Look for 1.4170 (61.8% retracement of July 29th lows and August 5th highs) and 1.4150 (61.8% retracement of July 8th lows and August 5th highs) to provide a stiff barrier for the USD to overcome in attempting take the EURUSD lower. Technical support levels aside, overall short-term bias continues to favour the USD as improved economic sentiment has propped up the Greenback for the time being.
Commodities Come Undone
Although the latest theme of pouring into riskier currencies on positive economic data has been turned on its ear since Friday’s NFP report, one constant that has remained true to date is the inverse relationship between the dollar and commodities. With the USD picking up steam of late, appeal for popular commodities such as gold and oil has been uninspiring. Spot gold has fallen off to its worst levels in close to two weeks as staggering equity prices have benefitted the dollar, causing precious metals to look dull. For many of the same reasons that gold has been affected, crude oil has also slumped, dropping 1.2% to currently sit just above $70/bbl. Oddly enough, the current level reflects the specific area that OPEC President Botelho de Vasconcelos has mentioned as being a reasonable price point for crude oil to sustain investment.
