Advertisement
Advertisement

U.S. Dollar Poised to Post Strongest Performance in Six-months

By:
James Hyerczyk
Published: May 31, 2016, 16:27 UTC

June US Dollar Index futures pushed higher on Tuesday and is poised to finish the month with its strongest performance since December on increased

US Dollar

June US Dollar Index futures pushed higher on Tuesday and is poised to finish the month with its strongest performance since December on increased expectations for a June or July U.S. interest rate hike.

Although the USD/JPY traded lower on end-of-the-month position-squaring and profit-taking, the U.S. Dollar is set to finish its best month in 1 ½ years against the Japanese Yen. Expectations of an earlier than expected Fed rate hike and several threats of intervention by the Bank of Japan helped boost the dollar and pressure the yen throughout May.

The AUD/USD was also a big mover for the day and the month. The Aussie is set to finish May sharply lower after the Reserve Bank of Australia surprisingly cut interest rates earlier in the month. After the action by the RBA, the Forex pair continued to feel pressure because of the increased possibility of a Fed rate hike and another RBA rate cut. On Tuesday, the Australian Dollar posted a strong gain against its U.S. counterpart after the release of stronger-than-expected domestic economic data.

The NZD/USD also finished sharply higher on Tuesday as traders booked profits and squared positions after a huge sell-off in May was fueled by expectations of an impending rate hike by the Reserve Bank of New Zealand.

The USD/CAD is also expected to finish the month and the session higher after the Forex pair posted a major bottom at 1.2460 on May 3. Short-covering and speculative buying helped boost the U.S. Dollar against the Canadian Dollar as well as low inflation in Canada. Worries about the damage Canadian wildfires may have inflicted on the economy were also seen as supportive for the USD/CAD.

The threat of a U.S. interest rate hike sooner-rather-than-later by the Fed also put pressure on the EUR/USD all month. Simply stated, the U.S. economy is strengthening slowly, but at a faster pace than the European economy. While the Fed is considering raising rates, the European Central Bank is likely trying to figure out additional means of stimulation.

The GBP/USD was set to finish the month sharply higher until Tuesday’s massive sell-off. The Forex pair was recovering from earlier weakness in May, driven higher by polls suggesting that Brits wanted to remain a member of the European Union. With the critical vote coming up on June 23, today’s nearly 1% decline suggests that investors are still concerned about the outcome of the referendum.

August Comex Gold finished higher on Tuesday on end-of-the-month position-squaring after a dismal performance in May. The market spent the month under pressure because the strengthening U.S. Dollar and rising equity prices made the precious metal a less-desirable asset.

July Crude Oil featured a two-sided trade on Tuesday before finishing higher for the fourth monthly gain. The market was underpinned by investors betting on higher U.S. fuel demand as peak driving season arrived in the No. 1 oil consumer. Data from market intelligence firm Genscape showed a drawdown of 686,700 barrels at the Cushing, Oklahoma delivery point for U.S. crude futures in the week to May 27, traders said, a report that provided further support to oil.

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