Dollar Struggling to Gain Traction

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July 8, 2014 By: , No Comments


Forex markets had some important fundamental data to work from last week, as most forex traders were squarely focused on the Friday Non Farm Payrollsrelease as a means for generating sentiment changes and guiding price direction in the major currencies.  For this reason, forex trading slowed to a near halt during the early part of the week, and then started to pick up in volatility as we crossed over the Wednesday trading session.

As is generally the case, this was the day private payrolls numbers were released by ADP and these signaled relative strength in the US labor markets.  This cause forex analysts to start upwardly revising their opinions for what the actual Non Farm Payrolls number would be, and this also brought a moderate lift to the US Dollar and to stock benchmarks like the S&P 500.

The final number did come in at 288,000 jobs for the month which is a very strong number from an historical perspective and still above the analyst expectation for what the result would ultimately be.  Along with this, the unemployment rate dropped to 6.1%, which is the lowest level in more than a half-decade so the overall impact was positive in terms of how it influenced the opinions of forex traders with respect to the broader global economy.

The Week Ahead in Forex Markets:  Wait For The Dust To Settle Before Getting Into Big Positions

In the week ahead, forex traders will likely need to wait for the dust to settle from last week’s events before making an entrance into any new large positions.  We could see some choppy price action in the short term as forex traders square positions and start to prepare for longer term trades.  It is still true that some sections of the market will enter into positions like a carry trade and then largely ignore the shorter term price movements that are seen during the summer.

Most important might be the prospects of improved economic data and the US Dollar itself.  In many cases, we have seen the Dollar started to weaken even if its own economy data is improving, and this could be something that is seen over the next few months.  A jobs number at nearly 300,000 would be highly bullish for almost any economic.  But forex traders that are looking to base positions on sentiment might instead look to higher yielding currencies (such as the AUD or NZD), since there is still some carry value to be found in forex pairs like the AUD/JPY and NZD/JPY.

Watch for some modest upside in these pairs into the end of this month, as there is enough reason to be bullish on the world economic and the influence of geopolitical safe haven stories is starting to become limited (ie the Ukraine and Iraq).

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