Kathy Lien | Mar 29, 2018 07:43
By Kathy Lien, Managing Director of FX Strategy for BK Asset Management.
The U.S. dollar traded higher against all major currencies Wednesday but USD/JPY was hands down the best performer. It's easy to explain the pair’s outperformance when we can identify at least 5 reasons for the rally:
Looking ahead, Thursday is the last full day of trade before the Easter holidays. With the exception of Japan and China, all of the major markets are closed on Friday. U.S. and Canadian markets are back online Monday but Europe, Australia and New Zealand will remain closed until Tuesday. Aside from the holidays, it is also the last day of the month and quarter, so we could see unusually erratic trading. A flurry of U.S. data is scheduled for release, including personal income, personal spending and Chicago PMI as the risk is to the downside for most of these reports.
Euro and sterling sold off against the U.S. dollar for the second day in row. Stronger German consumer confidence failed to help the single currency hold 1.24 with late-day selling driving the pair below the 20- and 50-day SMA at 1.2340. If the dollar continues to rise, the next stop could be 1.2250. Sterling on the other hand was pressured by a significantly weaker-than-expected CBI Distributive Sales survey. This report, which measures consumer demand, fell for the first time in 5 months due to inclement weather. However the Bank of England also warned about “evidence of financial distress in retail and leisure.” German labor market and inflation data are scheduled for release on Thursday along with the U.K.’s current account balance, first-quarter GDP revision and mortgage approvals.
All 3 of the commodity currencies traded lower against the greenback with the New Zealand dollar leading the slide. Although activity improved in March according to ANZ, business confidence slipped slightly. This report contributed to NZD’s weakness but the selling really accelerated when the U.S. dollar started to rise, triggering stops once the pair fell below the 20-day SMA, near .7250. The Canadian dollar was fairly resilient in the face of sharply lower oil prices and reports of significant gaps between the U.S. and Canada from Canadian NAFTA negotiator Verheul. Hope for a stronger Canadian GDP report on Thursday is the only explanation for the loonie’s refusal to fall as stronger retail sales and trade activity point to a faster growth in January. AUD/USD hit a fresh 3-month low but its losses were more modest than NZD/USD allowing AUD/NZD to halt a 4-day slide and trade back above 1.06.
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