Currency Pair Overview: Dollar Rebounds As Traders Seek Haven

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Overall: After what seems like an endless stream of positive economic data indicating the global economic recession has seen the worst, today’s data projected the opposite scenario that the economic recession may not yet have hit rock bottom and the recovery may be too weak to sustain the gains seen in higher yielding assets recently. The European economic contraction deepened in the first quarter, the U.S. ISM non-manufacturing index and factory orders came in below expectations and Federal Reserve Chairman Ben Bernanke, testifying on Capitol Hill, said that large U.S. budget deficits threaten financial stability. He also said that a strong economy can make the strong. Equity markets fell and the dollar, which has been battered in recent times, rebounded and strengthened significantly against all of the other major currencies.

According to ADP, U.S. companies cut 532,000 workers in May as the labor shows little signs of improving. The number was higher than economists had expected and April’s read was upwardly revised to show a drop of 545,000 from 491,000. Despite coming in below analysts’ expectations, the ISM non-manufacturing index showed the contraction slowed in May, moving up to a read of 44 from 43.7. Economists had expected a read of 45.1. U.S. factory orders came in at 0.7%, higher than the previous read of -1.9% but below the expected number of 0.9%.

The Euro (EUR/USD) The euro moved significantly lower on Wednesday as economic reports and comments from Fed Chairman Bernanke spurred traders to seek a safe haven. The pair dropped approximately 150 pips on the day, testing the 1.4100 support level intra-day. After an active day, movement in the pair may slow tomorrow morning as traders await the interest rate decision and press conference from the ECB.
 
The Pound (GBP/USD) Cable moved lower on Wednesday despite more positive economic news. The pair dropped 250 pips, after touching 1.6660 intra-day and closed close to the 1.6300 level. Despite the significant drop, the pair remains above all of the daily simple moving averages. U.K. services PMI came in at 51.7, higher than the previous read of 48.7 and higher than analysts’ expectations of 49.4.

The Aussie (AUD/USD) European and U.S. equity markets closed much lower and gold prices tumbled as the dollar strengthened across the board. The aussie dropped 180 pips on the day as traders became less risk tolerant on fears the economic recession may not have reached a bottom yet. The pair closed the day near the 1.8000 level. We continue with Australian ‘red flag’ economic releases tonight as trade balance figures will be released.

The Cad (USD/CAD) Oil prices dropped on a spike in U.S. crude inventories and couple with falling equity markets, the Canadian dollar had little chance of continuing its winning ways against its U.S. counterpart on Wednesday. The cad gained approximately 250 pips pushing back above the 1.1000 level and testing 1.1100 at the close.

The Swissy (USD/CHF) The swissy moved higher on Wednesday as the dollar strengthened across the board. The pair gained 75 pips, closing just above the 1.0700 level, after trading in a wide 145 pip range. The pair remains below all of the major daily simple moving averages. There were no Swiss economic reports released this morning and none are scheduled for tomorrow.

The Yen (USD/JPY) The yen gained 45 pips on the day, closing just below the 96.00 level. The dollar strengthened across the board on Wednesday, but the gains against the Japanese yen were tempered as equity markets moved lower on the day. The 20 day simple moving average held as support and the pair closed trading between the 20 and 100 day SMA’s