Currency Pair Overview: Dollar Declines On Lower Volume


Overall: Volume in the currency market was below average today and that was due to most of Europe being closed for the May Day Bank Holiday. Still, there was decent movement in the market with the overall trend being dollar short. The dollar declined against most of the other major currencies, the exception being the Japanese yen, helped by a better than expected read in the ISM manufacturing PMI. In ‘normal’ times a better than expected read would have led to the dollar strengthening, but in today’s market environment ‘good news’ leads to speculation the economic downturn may be nearing a bottom and traders become optimistic and move out of the dollar as a safe haven. The dollar did rally on the news but not enough to turn the tide of the overall direction seen since the start of the Asian session. Positive news from the U.K. helped the pound, slightly positive equity markets helped the Australian dollar and oil prices rising almost $2 a barrel coupled with positive equities helped the Canadian dollar. This past week has been a little light in the way of ‘Red Flag’ economic releases, but that all changes next week. A huge week of economic data looms highlighted by interest rate decisions from Australia, U.K. and the euro-zone. It is also non-farm payrolls week, which usually creates excitement, along with Fed Chairman Bernanke testifying on Capitol Hill. While we are at it, why not throw the results of the bank’s stress tests on the fire? They are tentatively scheduled to be released on Thursday.


The Euro (Eur/Usd) The euro moved higher during the Asian session, dropped at the London open, recovered and then dropped during the U.S. session, eventually closing the day slightly higher. Volume was low because of the bank Holiday in most of Europe and the pair managed to hold above the 100 day simple moving average. There were no euro-zone economic releases today


The Pound (Gbp/Usd) Cable moved much higher on Friday, testing the 1.4900 level at the close, as the pound rallied after the U.K. manufacturing PMI beat analysts’ expectations, coming in at 42.9 and on news that mortgage approvals rose to the highest level in ten months in March. The pair gained approximately 100 pips on the day and closed at the highest level of the week.


The Aussie (Aud/Usd) The aussie gained approximately 60 pips on Friday as traders eased out of dollar positions on optimism the global economy is on the road to recovery. U.S. equity markets closed higher bolstering the Australian currency. The pair strengthened overnight but erased most of the gains during the early stages of the U.S. session, but moved higher as stocks rebounded. The AIG manufacturing index dropped for the month of March, coming in at 30.1, down from the previous month’s 33.2 read. 


The Cad (Usd/Cad) Equity markets closing higher, oil prices gaining almost $2 a barrel and better than expected U.S. ISM manufacturing PMI all contributed to the Canadian dollar strengthening on Friday. Each economic release that gives an indication the global recession may be finding a bottom gives a boost to the Canadian and we have seen the cad weaken for three straight days. The pair dropped 70 pips on the day and closed just above the 200 day simple moving average.


The Swissy (Usd/Chf) The swissy dropped approximately 50 pips on the day as the dollar weakened overall, breaking below the 200 day simple moving average but struggling to close below that level. The pair has been held captive between the 100 and 200 day SMA’s since Wednesday and needs to be break free, to the downside before we see any sustained movement. Switzerland was closed for the Bank Holiday but we will have more economic releases from Switzerland next week than we usually see along with SNB board members and the Chairman making scheduled speeches.


The Yen (Usd/Jpy) The Japanese yen weakened across the board as the better than expected ISM manufacturing PMI in the U.S. and higher equity markets erased demand for the currency as a safe haven. Economists, trade desks and traders are becoming more and more optimistic about recovery in the global economy and traders are becoming more tolerant of risk, overall, which hurts the Japanese currency. The pair gained 70 pips on the day and broke above the 20 and 200 day simple moving averages.