Advertisement
Advertisement

Weaker U.S. Dollar Sets Bullish Tone

By:
James Hyerczyk
Published: Feb 4, 2016, 17:12 UTC

The falling U.S. Dollar continued to set the tone of the markets on Thursday. Helping to drive the dollar lower were a series of negative U.S. economic

Weaker U.S. Dollar Sets Bullish Tone

dollar puzzel forexwords
The falling U.S. Dollar continued to set the tone of the markets on Thursday. Helping to drive the dollar lower were a series of negative U.S. economic reports.

U.S. productivity declined 3 percent in the fourth quarter, according to the Labor Department. This was its biggest drop since the first quarter of 2014. That’s a good-sized drop and it indicates flat-to-negative growth in the U.S. economy.

U.S. jobless claims rose 8,000 to 285,000 last week. Traders were looking for a 280,000 number. The markets will start to react if it reaches 300,000 or higher and begins to trend upward. This is the 48th straight week that the number of claims have been below 300,000, its longest streak since the early 1970’s.

Factory orders for December also fell 2.9 percent, according to the Commerce Department. This was larger than the expected 2.6 percent decline.

The negative economic data drove down the U.S. Dollar and supported the case for the Fed abandoning its plans for any rate hikes in 2016.

There was no major economic news out of the Euro Zone today, but European Central Bank President Mario Draghi did speak. The EUR/USD rallied after Draghi discussed the pros and cons of using monetary policy to fight off inflation. He also said the central bank will not “surrender” to low inflation.

“Adopting a wait-and-see attitude and extending the policy horizons brings with it risks:  namely a lasting de-anchoring of expectations leading to persistently weaker inflation,” he said. “And if that were to happen, we would need a much more accommodative monetary policy to reverse it. Seen from that perspective, the risks of acting too late outweigh the risks of acting too early,” he added.

The Euro most likely rallied because of the weaker U.S. Dollar because Mr. Draghi didn’t say anything bullish and sounded a little dovish.

The British Pound also rallied because of the weak U.S. economic data as traders primarily ignored the news that the Bank of England had cut its forecast for economic growth. In its latest Inflation Report, it cut its prediction for GDP Growth this year from 2.5% in November to 2.2%.

The BoE also released the minutes of the latest meeting of its interest rate-setting committee. It voted 9-0 to keep interest rates at 0.5%. Ian McCafferty, who had been voting for an increase since August, unexpectedly voted for no change this month.

The central bank also downgraded its expectations about wages. The BoE now expects average weekly earnings to increase 3% this year, down from 3.75% it predicted three months ago.

March Crude Oil prices posted a choppy, two-sided trade on Thursday. The key supply and demand fundamentals are still overwhelmingly bearish, but shorts have been covering in anticipation of a meeting between OPEC and Non-OPEC countries. At the meeting, the participants are expected to discuss production cuts. Volatility in crude oil is high at this time because the market is being saturated with rumors.

Falling U.S. interest rates and the news that investors have lowered expectations of a Fed rate hike in 2016 drove April Comex Gold futures to their highest levels since October 29. Like the currency markets, the weaker U.S. Dollar is the catalyst driving up gold.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

Did you find this article useful?

Advertisement