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5 February Forex daily review

Sergiy Zlyvko
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Yesterday the foreign exchange market after the release of mixed U.S. data basic pairs remained in a correctional phase, which began three days ago. During the European session the British pound was under pressure because of growth instead of business activity index in the services sector in the UK, which fell to 58.3, missing the forecast by 0.7 points. Then ADP index by its value disappointed dollar bulls.

The number of jobs in the private sector in the U.S. according to the report of Automatic Data Processing (ADP), in January increased by 175 thousand vs. an increase of 185 thousand in the forecast.

Weak data on the U.S. labor market from ADP company boosted gold prices, decline in yield of 10-year Treasury bonds and the dollar. Situation stabilized after the index of business activity in the U.S. service sector publication. In January, business activity rose to 54.0 against 53.0 the previous month. The forecast was 53.6.

Besides the fact that ISM index grew, market participants drew attention to the increase in employment sub-indices from 55.6 to 56.4. Before payrolls this is an important indicator, but it is not determinative, since the former NFP often odds with the components of the index of business activity in the service sector and the manufacturing sector.

On Wednesday, the volatility in the currency market in the evening was high, but the data from the United States could not have a serious impact on exchange rates, as traders focused all the attention to the meetings of the ECB and the Bank of England and on Friday the U.S. labor market report will be published.

Most economists expect the ECB to leave monetary policy unchanged, but assuming the reduction in the rate of inflation we cannot exclude the easing. It was not easy to make a forecast for today for all pairs and we never know what surprises may present M.Draghi and M.Carney. For the euro the basic scenario is fall to 1.3465. Then we took into account the reaction of traders in the past decision by the ECB and Draghi’s speech.

On January 9, EURUSD rate during a speech of Draghi declined by 75 points and pound through EURGBP cross got the support. As a result, GBPUSD remained sideways. Today the reaction of market participants may differ from January 9 that Carney promised to untie monetary policy on the level of unemployment and bind to another signal indicating a rate increase by the Bank of England.

Today again the Australian dollar comes off after the publication of positive statistics from Australia, but we think that until the evening the traders should not enter the market.

Expectations on franc justified and there is no volatility in the market. At the level of 0.9005 support has formed. At the level of 0.9060 – the resistance. We would suggest that during a speech of Draghi the dollar strengthens against the euro and Swiss franc. At least, the technical picture is perfect for the growth to 0.9080.

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