Dollar firm ahead of ADP report

August 31, 2016

Article by ForexTime

Dollar bulls received ample encouragement on Tuesday following the impressive consumer confidence report which bolstered sentiment towards the US economy. The Consumer Confidence Index (CCI) for August lurched to its highest level in almost a year at 101.1 consequently reinforcing expectations over the Federal Reserve raising US rates in 2016. For an extended period, economic data from the States has repeatedly exceeded targets while the slightly easing concerns over the unstable global landscape continue to provide leeway for the Fed to take action. Clarity and direction on US rate hike timings were gifted to investors following Yellen’s hawkish speech last week and it has now become a matter of when rather than if rates will be increased.

Attention may be directed towards Wednesday’s ADP private sector payroll report which could offer further clarity on how the US labour force is faring in a period of global uncertainty. If the ADP follows a positive pattern and exceeds expectations, then the Dollar could surge higher as bets intensify over the Fed potentially pulling the trigger in December.

Dollar bulls are relentless and this may be displayed on the Dollar Index which has lurched towards 96.00. From a technical standpoint, prices are turning bullish on the daily timeframe and a decisive breakout above 96.00 could open a path towards 96.50.

Yen weakens on stimulus hopes

Bank of Japan Governor Haruhiko Kuroda’s pledge to boost monetary policy if needed has spurred expectations of the BoJ taking action in the future consequently weakening the Yen. The terrible cocktail of repeatedly soft domestic data and a strengthening Yen from risk aversion continues to weigh heavily on the Japanese economy and this has pressured the central bank considerably. Even though there is optimism over the BOJ taking further action, with its history of under delivering monetary measures, will investors be left empty handed once again? Previous speculations of Helicopter money have been quelled with talks of funding infrastructure projects as a method of jump-starting its ailing economy. Overall, sentiment remains firmly bearish towards Japan with the Yen potentially weakening further as bets mount over the BoJ taking action.

The combination of Dollar strength from renewed US rate hike expectations and Yen weakness from stimulus hopes has encouraged bulls to install heavy rounds of buying on the USDJPY. Although prices are currently respecting a bearish trend on the daily timeframe, a decisive breakout above 104.00 could spell trouble for the bears.

Commodity spotlight – WTI Oil

WTI Oil pierced below $46 on Wednesday as the concerns over the excessive oversupply of oil in the global markets haunted investor attraction towards the commodity. Fears are mounting that U.S crude stocks may have expanded further last week while optimism continues to diminish over OPEC securing a freeze deal agreement in September’s informal meeting. With Dollar strength becoming a dominant theme in the markets, WTI could be pressured further moving forward. The ingredients for a bear market are visible and the awful combination of oversupply concerns and faltering demand fears could encourage bears to send WTI Oil lower. From a technical standpoint, a strong breakdown below $46 could open a path towards $44.

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Article by ForexTime

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