USD Strength On Flimsy Data? Feb. 27, 2015
USD Strengthens Across The Board, Data Questionable
As I was looking to find a reason for the large move to USD strength yesterday after the data release, I couldn’t help but think “what a BS move”. However after looking at the lesser impact events there was a large miss to the upside on Durable Goods Orders meaning that the next print on Durable Goods should be much better. In that case housing has a good chance of being better as well and in turn the economy. Therefore the potential for a rate increase coming sooner rather than later goes up as well. I am sticking with my comments in that we will only get token rises in very small increments but it wouldn’t be the first time I have been wrong about the Fed. The last thing they want to do is raise rates only to derail any potential recovery.
This is also a clear example of how the seemingly less relevant data has much higher impact these days. CPI was just a trickle higher, Unemployment Claims above 300K so the typically higher impact data should have off set the positive miss but the Fed really needs to find an excuse to push rates up and the big boys know this. If they dont get some room to move interest rates the next time the crisis shows its face they will have no tools except printing money yet again and they know that really dont work. The fact is the causes of the crisis are still lurking and the one guarantee about any problem is if you dont do anything to fix it then it always returns in some way, shape or form.
EUR/USD Plunges Almost 200 Pips
The drop on the EUR/USD does suggest that they will be pushing lower but the question is where from. Typically we see them try and flush out weak shorts before extending a move like this but if they are really convinced the Fed will be raising rates there will be enough conviction and they wont be concerned about doing a short squeeze first. Having said that I will not have a bias on direction and watch how they test the Asian highs during the London session or potentially show the conviction below yesterdays lows for a push down to 1.1147 or lower. If they do run stops to the lows or show conviction above the Asian highs during London I will be open for the long on a short squeeze.
GBP/USD Tests 1.5400 On USD Strength
With the BOE also threatening to raise rates the GBP/USD had a more limited push down yesterday and is more likely to try and push out weak holders if they do intend to push it lower. If they do manage to show some conviction above the Asian highs today then they will most likely test up to 1.5468 if they do intend to drive it down further. However there is a higher chance of them holding inside this range if they believe the BOE will be raising rates as well. If I do catch the long today I will be watching to see how they test upward and potentially hold for a retest of the highs. Otherwise I will be open for the short at the Asian highs with a clean set up but prefer to see conviction down before entry due to the potential for a squeeze upward.
EUR/JPY Holding Recent Daily Lows
The push down on the EUR/JPY was held up by some strength in the USD/JPY but also made an extended push down to test recent daily lows. This pair also has higher potential of a pullback if the UJ strength continues. Again I will look for conviction during the London session to show me more on direction while watching the 133.88 level for a short or 133.57 for a long. They could also hit stops at the Asian lows before a push up so I will be cautious on taking a long higher.
Forex News Today
The calendar is quiet until the NY session with US GDP figures expected to drop a bit. A disappointment may get them rethinking the rate increase but my thoughts are it will be close or slightly better than expectations. There is also Pending Home Sales expecting an improvement into positive territory which should be close considering the good Durable Goods Orders data yesterday.
Have a great weekend
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