USD Sentiment Turn Negative – Forex Trading News

Yesterday’s NY session saw USD sentiment turn negative partly on the back of poor US Non-Manufacturing PMI which showed the lowest since April 2014. ECB President Draghi reinforced the ECB’s commitment to its QE program and said the recovery is on track. These comments, along with the the first positive inflation readings since November 2014 and a drop in the EZ unemployment rate to the lowest since 2012, provided some support for the EUR. In addition euro was bolstered by optimism about a possible Greek deal.

Current Market Update:

The USD remains the strongest currency in the longer term. The recent CPI reading has reaffirmed USD strength amid speculation of a rate hike by September. This week’s NFP will be vitally important. Long positioning in the dollar over the past 18 months has been significant; this can cause aggressive downward moves in the USD, occasionally on the back of little fundamental data, as stop-losses are triggered. In recent sessions we have seen USD weakness as US data comes out mixed and positive sentiment on other currencies such as AUD and EUR takes the focus.

The EUR remains fundamentally weak due to QE and the ongoing Greek debt issue, however recent inflation and unemployment numbers have signalled that a recovery is on track, which has given the currency positive sentiment. If Greece fails to make any of their imminent repayments, the euro will be pressured. Conversely, a deal with a solid resolution will precipitate a relief rally.

GBP is looking at a rate hike in the next 12 months. Yesterday’s Services PMI was very negative for the pound, however Cable regained its losses due to dollar weakness.

AUD: Low commodity prices and a slowdown in China has put bearish pressure on the AUD, however the recent RBA statement did not include any specific mention of further cuts and stated that inflation is expected to remain within target. This, along with better than expected GDP, has provided bullish sentiment for the AUD and has shifted the currency to a more neutral stance fundamentally. The positive data from the first half of the week has been somewhat discounted by today’s trade deficit and poor retail sales number.

NZD has a chance of decreasing interest rates next week. The Overnight Index Swap market is pricing a 51% chance of a June 11 cut. Several major banks predict a cut in both June and July, while NZIER expects the RBNZ to remain on hold for at least the rest of the year, as they believe the central bank cannot afford to boost the overheating housing market.

CAD remains on the weaker side of neutral. GDP last Friday was weak, prior to that CPI and Retail Sales were also weak. CAD will take most of its direction from any significant changes in the price of West Texas Intermediate crude oil. When there is no oil-related news, the oil price will generally move with negative correlation to the USD.

JPY remains bearish due to QQE. Yen weakness has accelerated recently on the back of USD strength. Yen is at a 12-year low against the dollar. Sentiment on the JPY can turn bullish quickly if there is major uncertainty in the markets. Language from the BOJ shows they believe a recovery is beginning and QQE is having its intended effect.

CHF is fundamentally a weaker currency given the SNB’s negative interest rates, however it is highly susceptible to volatility due to SNB potentially intervening to weaken the currency as it tends to strengthen on safe-haven demand. CHF often will take direction from the EUR with which its correlation over the last 50 trading days is 74%.

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