Forex U.S. Review – Euro declines, safe haven yen and Swiss franc rise

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EURUSD accelerated its decline in the U.S. session after better than expected U.S. factory orders data rose in July by the most in four months. Also the Chicago PMI business index fell less than forecast this month. This upbeat data gave dollar a boost against a weakening euro which was dragged down earlier in the day after disappointing unemployment and inflation data in the euro zone that fuelled speculation of no more interest rate hikes by ECB until mid 2012. Also traders said month-end demand for dollars from investors rebalancing stock and bonds portfolio weighed on the euro dollar pair. EURUSD fell to 1.4359 from the1.4436 open.

 

GBPUSD fell in the U.S. session to pare all gains made in the previous trading period. Due to lack of domestic data, sterling took direction from the euro. However, there will be U.K. data on Thursday and Friday on manufacturing and construction PMI both expected to fall. Also Bank of England policy committee member Fisher will be speaking tomorrow. If his speech is dovish, this will weigh on the pound. GBPUSD fell to 1.6237 from an early high of 1.6330.

 

USDCHF continued to fall in the American session as demand for the safe haven currency was still high due to investor concerns of a slowing global economy after poor economic data from the euro zone and dovish minutes from the U.S. Federal Reserve August 9 meeting. Switzerland’s Economy Minister Johann Schneider-Ammann said today that “We’ll have to keep living with the strong franc for some time. It must be a combination of measures that will lead us into the future”. USDCHF fell from 0.8094 to a low of 0.7992 and consolidated as it entered overbought territory.

 

The Canadian dollar hit a four week high against its U.S. counterpart after better than expected U.S. factory orders data rose in July by the most in four months and also the Chicago PMI business index fell less than expected. Good data from south of the border is positive for the Canadian economy and currency since the United States is Canada’s main trading partner. USDCAD fell to 0.9723 after the U.S. data but soon rebounded to levels prior the U.S. data, as the Canadian GDP data released earlier weighed more. Canadian GDP data showed the economy contracted in the second quarter, for the first time since the 2008 recession, blamed on temporary factors like the Japan earthquake which interrupted supply chains and parts delivery to Canada for auto mobile production. Annualized GDP fell 0.4 percent in Q2 lower than the forecasted increase of 0.1 percent.

 

USDJPY opened New York at 76.60 and edged down but spiked to 76.83 after better than expected U.S. factory orders. However, yen soon regained strength as investors prefer in the long run to hold the safe haven investment due to uncertainty of the U.S. economic recovery overall until the Fed decides whether to relaunch quantitative easing to stimulate the economy. After USDJPY hit a low of 7641 it settled as traders remained wary of the potential for Japanese authorities to intervene to curb yen strength.

 

Gold made a big advance from the session low of $1,811.22 to hit a session high of $1,839.77 as investors want to protect wealth on speculation that the Federal Reserve will take more action to spur growth. Dollar could weaken if the Fed were to take quantitative easing measures. Gold and dollar have an inverse relationship.