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Dollar Down Against Basket of Currencies; Mixed Versus Funding Currencies

By:
James Hyerczyk
Published: Sep 22, 2016, 18:10 UTC

The U.S. Dollar fell against a basket of currencies on Thursday as the Greenback continued to feel repercussions from the U.S. Federal Reserve’s interest

us-dollar

The U.S. Dollar fell against a basket of currencies on Thursday as the Greenback continued to feel repercussions from the U.S. Federal Reserve’s interest rate decision and monetary policy statement from Wednesday. The early moves drove the December U.S. Dollar index futures contract into 94.95 early in the session before it rebounded to 95.20, down 0.465 or -0.49%.

The dollar was mixed against the two funding currencies, falling to its lowest level in a week against the Euro, but recovering some ground after yesterday’s loss against the Japanese Yen. The volatility is being triggered by investor attempts to position themselves properly after the Fed said yesterday that we could see a rate hike in December, but fewer cuts in the future.

This type of price action indicates that investors had been expecting a much more hawkish message than the central bank delivered.

Although the Bank of Japan implemented a surprise overhaul of its previous monetary policy stance, bullish Japanese Yen traders were not too impressed. They continued to take the USD/JPY lower on the notion that the central bank is running out of ideas and ammunition to stimulate the economy and weaken the currency.

Thursday’s U.S. economic data was mixed and offered little to generate a meaningful trader reaction. Weekly Unemployment Claims came in better-than-expected at 252K. Traders were looking for 261K.

The Housing Price Index rose 0.5%, besting the 0.3% estimate. However, Existing Home Sales missed their mark with a 5.33 million unit print, compared to expectations of 5.45 million units. Finally, the Conference Board’s Leading Index posted a 0.2% decline versus a forecast of 0.0%.

December Comex Gold prices were up, but gains were limited due to the two-sided Fed message. Today’s rally to $1345.20, drove gold up $13.80 or +1.03%. This was likely a follow-through reaction to the weaker dollar and the news that the Fed left rates unchanged in September. However, gains may have been limited because of the strong possibility of a rate hike in December.

November Crude Oil continued to receive support from yesterday’s reported draw by the U.S. Energy Information Administration and today’s weaker U.S. Dollar, which may lead to increased demand. Traders also cited the narrowing of the spread between West Texas Intermediate Crude Oil and Brent Crude Oil to its tightest level since August, as evidence of improved fundamentals in the U.S.

Despite the third consecutive draw in the U.S, it may not have affected the global supply too much since Russia announced its output had hit a new record high above 11 million barrels per day. Renewed production in Libya and Nigeria will also eventually contribute considerably to the oversupply situation.

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.

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