Market Beat: Dollar Rallies Again as U.S. Stocks Still Lead the Way

July 25, 2016

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This article is originally referred from Daily FXGlobe

The U.S. Dollar was the strongest currency on the last day of the week yet again, following the release of the European and Japanese Manufacturing and Services PMI’s. The economic indicators were mostly positive, but the surprising weakness in the British data caused an unexpected rally in the USD, as investors got scared of the possible consequences of the Brexit yet again. The Pound lost more than 1% against the Dollar after the release.

Oil continued to drift lower on Friday, as the commodity remains under pressure from the persistently bearish fundamentals, despite the marginal improvements in the oversupply situation in the past few months. Commodity currencies lost ground on Friday as well, especially the Canadian Dollar. The Japanese Yen was unchanged after the strong rally on Thursday, but the safe haven currency is lower once again today in early trading.

GBP/USD (current price: 1.3132)

Cable ended the week on a negative note, below the 1.31 level, as the British economy shows early signs of weakness in the reports that already contain data since the Brexit referendum. The Bank of England pledged to support the economy in the case of a significant slowdown, and Friday’s 47.4reading from the Services PMI, shows that trouble might be ahead. Manufacturing posted a positive surprise, but the segment is relatively small compared to the whole economy.

Our assessment: The Pound continued to trade sideways in a relatively narrow range, but the 1.30 level is getting closer yet again, and the recent releases suggest that another re-test of the crucial level is possible.

Cable trading just above the 1.30 level on the Daily Chart, Created by FxGlobe MT4

Cable trading just above the 1.30 level on the Daily Chart, Created by FxGlobe MT4

USD/JPY (current price: 106.14)

The Japanese Manufacturing PMI came in better than expected on Friday, just as the Japanese Trade Balance did today in early trading. The positive releases failed to support the currency, as the Yen continues to trade in a negative trend since the Japanese elections that reassured the leadership of Prime Minister Shinzo Abe. The FOMC meeting later this week might give a further boost to the pair as U.S. economic indicators still show modest growth.

Our assessment: The pair is right at the upper boundary of a declining long-term trend channel and a move above the formation could signal a major bullish reversal.

USD/JPY after a 900-pip rally on the Daily Chart, Created by FxGlobe MT4

USD/JPY after a 900-pip rally on the Daily Chart, Created by FxGlobe MT4

EUR/GBP (current price: 0.8357)

The pair continued to trade in a very narrow short-term range on Friday, above the 0.8250 support, but below the 0.845 resistance. The economic prospects and the possible monetary reactions might continue to favor the common currency against the Pound, but Mario Draghi also promised further extraordinary measures should the Brexit cause a major slowdown. The short-term consolidation pattern might get resolved this week, as several important releases will come out regarding the global economy.

Our assessment: EUR/GBP trades in a flag consolidation pattern, that developed since the surge following the Brexit vote, with strong support at 0.8125 and key resistance near 0.8625.

EUR/GBP in a long-term uptrend on the Daily Chart, Created by FxGlobe MT4

EUR/GBP in a long-term uptrend on the Daily Chart, Created by FxGlobe MT4

Gold (current price: $1318.00) and Silver (current price: $19.51)               

Precious metals lost ground yet again on Friday, and they are down this morning as well, as the positive turn in global sentiment favors risk-assets against safe haven ones. Gold and silver are now both trading slightly higher than their recent correction lows, showing some relative strength in the face of the ongoing Dollar rally. The mid-week FED decision might turn the tide for the metals, as traders will probably focus on the $1300 level for gold and the $19 level for in the case of silver.

Our assessment: Gold is trading only one percent above the all-important $1300 line, and a re-test of the level is possible in the coming days, especially if the FED releases a hawkish statement.

Gold in the middle of a correction on the Daily Chart, Created by FxGlobe MT4

Gold in the middle of a correction on the Daily Chart, Created by FxGlobe MT4

Economic Releases

Forex markets will probably have a quiet session today, as only a few economic releases will come out to cause volatility. The most awaited report is the German IFO Business Climate Index that might reveal new facts about the effect of the Brexit scare on business leaders in Europe. The New Zealand Trade Balance will also be published in the evening and the recent negative trend in the Kiwi might lead to a significant move in the case if a surprising number.

Original Source: Daily FXGlobe

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