Figures: AUD-USD, EUR-CAD 30-min chart
Source: Fxtrade
The week gone by...
Its not without reason that they say the Greenback is the reserve currency of the world. The US Dollar has this uncanny habit of shrugging off 'negative' data and rallying against other currencies, leaving a lot of those who bet against the Dollar licking their wounds. (I am one of them!)
The Dollar rallied early in the week on the back of positive and 'strong' manufacturing data. A lot of shorts had been building up on the EUR in the earlier week, and despite some late week short-covering, most of the shorts stayed put on their position. Towards the end of last week came the much awaited payrolls data. This number along with the other 'indicators' like GDP growth, inflation, trade deficit etc., has the potential of moving the markets. The markets had already 'discounted' the much lower than expected first quarter GDP growth in the US economy. So the only indicator which could give the market 'direction' the coming week was the payrolls data.
That it came lower than expectations didn't make a difference. The US Dollar didn't as much as bat an eyelid and after a brief drop, continued rallying against major currencies.
The week ahead...
The ECB is expected to meet to decide for or against a rate hike. My feeling is that it will leave interest rates unchanged for the time being, and probably raise it to 4.00% in its June meeting. Also manufacturing data is expected from Germany and France. The markets, in my opinion, have already discounted the 'unchanged rate' scenario and this implies that the EUR could see sideways movement, without much hype and hoopla.
Falling Wedges
This brings me to the technical developments for the past week. One saw a building up of the 'Falling Wedge' pattern for the US Dollar against major currencies. The AUD-USD and EUR-CAD charts illustrate this phenomenon. The encouraging development towards the end of the week was the 'breaking' out from the Falling Wedge. If this isn't a false breakout, one can expect these currencies to rally against the US Dollar.
Conclusion
I am staying Long on the EUR going into next week, leaving the position unhedged. I feel that the week could see the EUR gaining against the US Dollar. I am also Long on the USD versus the INR. Although the US Dollar rallied against major currencies, it faltered against the INR. Strong portfolio and FDI flows into India led to the Rupee appreciating versus the Dollar. The Reserve Bank of India is wary of intervening to keep the INR from appreciating more, for fear of stoking inflation. How it manages to walk the tight rope of balancing a strong currency and inflation remains an interesting event for observers.
The Dollar rallied early in the week on the back of positive and 'strong' manufacturing data. A lot of shorts had been building up on the EUR in the earlier week, and despite some late week short-covering, most of the shorts stayed put on their position. Towards the end of last week came the much awaited payrolls data. This number along with the other 'indicators' like GDP growth, inflation, trade deficit etc., has the potential of moving the markets. The markets had already 'discounted' the much lower than expected first quarter GDP growth in the US economy. So the only indicator which could give the market 'direction' the coming week was the payrolls data.
That it came lower than expectations didn't make a difference. The US Dollar didn't as much as bat an eyelid and after a brief drop, continued rallying against major currencies.
The week ahead...
The ECB is expected to meet to decide for or against a rate hike. My feeling is that it will leave interest rates unchanged for the time being, and probably raise it to 4.00% in its June meeting. Also manufacturing data is expected from Germany and France. The markets, in my opinion, have already discounted the 'unchanged rate' scenario and this implies that the EUR could see sideways movement, without much hype and hoopla.
Falling Wedges
This brings me to the technical developments for the past week. One saw a building up of the 'Falling Wedge' pattern for the US Dollar against major currencies. The AUD-USD and EUR-CAD charts illustrate this phenomenon. The encouraging development towards the end of the week was the 'breaking' out from the Falling Wedge. If this isn't a false breakout, one can expect these currencies to rally against the US Dollar.
Conclusion
I am staying Long on the EUR going into next week, leaving the position unhedged. I feel that the week could see the EUR gaining against the US Dollar. I am also Long on the USD versus the INR. Although the US Dollar rallied against major currencies, it faltered against the INR. Strong portfolio and FDI flows into India led to the Rupee appreciating versus the Dollar. The Reserve Bank of India is wary of intervening to keep the INR from appreciating more, for fear of stoking inflation. How it manages to walk the tight rope of balancing a strong currency and inflation remains an interesting event for observers.
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