Dollar takes a beating as euro rises
THE dollar weakened amid news of the resignation of vice chairman of Federal Reserve. US jobless claims increased to a two and a half high, signaling slow recovery in the job market. The European Central Bank (ECB) retained its monetary policy as President Mario Draghi emphasized on inflation growth which triggered a rise in euro. UK faces a slowdown in housing output.
US factory orders fell 3.3 per cent in July, the worst recorded since December 2014. Trade deficits narrowed to US$43.7 billion in July, exceeding consensus’ expectations.
The US Institute of Supply Management said the services index expanded to 55.3 in August against 53.9 in July. Weekly claims for jobless benefits rose to 298,000 for the week ended September 2.
US Congress has passed a bill to provide US$8 billion aid relief for victims Hurricane Harvey. This could extend US’ debt limit until December 15. The deal was proposed by Democrats and approved by President Donald Trump despite many objections by GOP senators.
The vice chairman of Federal Reserve Stanley Fischer resigned due to personal reasons ahead of his term which was suppose to end in June 2018. The dollar fell after the news and spiked gold prices higher to a one-year high record.
China’s Caixin services index rose to 52.7 in August and maintained good growth in the last three months. Trade surplus shrank in August at US$42 billion gains, the lowest in three months.
Japan’s final GDP rose 0.6 per cent in the second quarter (2Q) ended June. Current surplus rose 2.03 trillion yen in July, the highest recorded in five months.
German factory orders slid 0.7 per cent in July after a revised 0.9 per cent in June. Industrial production stayed flat in July and below positive expectations. In the eurozone, revised GDP grew 0.6 per cent in 2Q ended June.
ECB retained its monetary policy. Draghi said that necessary stimulus would be added if needed but remained dovish on the timeline to initiate the tapering. Instead, Draghi focused his speech on inflation growth which triggered a rise in the euro currency.
UK services index reported by Markit stayed strong at 53.2 in August without much change from the previous month. Manufacturing production grew 0.5 per cent in July, the best recorded in seven months. Construction output slid 0.9 per cent against minus 0.1 per cent in June, indicating waning confidence in housing demand. Technical forecast US dollar/Japanese yen has broken below 108.20 level as the dollar fell. This week, we reckoned the trend could continue to fall until 105.20 if it could not recover above 108.50. The market has turned bearish as traders seek a safe haven in the yen after the defiance portrayed by North Korea.
Euro/US dollar climbed last week after Draghi’s speech. This week, the market might ascend further as traders take flight out of the dollar into the euro. Support lies at 1.1950 in case of a drawdown while bullish trend might reach up to 1.2250 target.
British pound/US dollar surged last week mainly due to the weakening dollar. The market has climbed above the 1.3 benchmark and it could head up to 1.32 without correction. This week, there could be a resistance emerging at 1.3250 region while support lies at the 1.3 level. Piercing above 1.3250 resistance might lead to the market reaching up to 1.34 area.
Disclaimer: This article is written for general information only. No liability by the writer, publisher or any third party involved in the distribution of this work. Dar Wong is a registered fund manager in Singapore with 27 years of global trading experiences. You may reach him at dar@pwforex.com.