Currency Pair Overview: Volatile Day As The Dollar Rebounds From Overnight Lows

Overall: A volatile day in the currency market as the dollar weakened overnight, during the Asian session, on increased optimism that the global economy is rebounding, but strengthened shortly after the London open and held on through the U.S. session. The greenback was given a boost after it was announced that initial jobless claims fell more than was expected, coming in at 631,000 new claims filed last week and after PCE numbers were in-line with expectations. The dollar closed the day stronger against the euro and Swiss franc, erasing losses of 100 pips in each case, and the Japanese yen and weaker against the pound and cad, but well off the lows, and flat against the aussie. There was a clear shift in outlook for the market as traders abandoned their risk tolerance after the Asian session and bought the dollar, in part because of speculation that Chrysler LLC would file for bankruptcy, which was officially announced this afternoon. Consumer spending in the U.S. fell more than forecast at the end of the first quarter. Purchases dropped 0.2% in March, the first drop this year. Wages and benefits rose at the slowest pace on record. At the end of the day, although the dollar closed mixed, momentum is clearly on the greenback’s side.

The Euro (Eur/Usd) Until the European session got into full swing, it looked inevitable that the euro would continue the rally that started on Tuesday and make it a third straight day of higher movement. However, that changed rapidly and the pair fell almost 200 pips from the overnight high but managed to find its footing near the 1.3200 level, the same area where the 20 and 100 day simple moving averages have converged. Economic reports from the euro-zone showed that the German economy lost 58,000 jobs in March, less than had been expected, while the euro-area unemployment rate rose to the highest level since 2005. The euro-area CPI estimate was in line with expectations. On the day, the pair closed 30 pips lower.

The Pound (Gbp/Usd) Cable gained approximately 160 pips overnight before the dollar strengthened, creating a dramatic reversal which resulted in a drop of almost 250 pips before the pair stabilized and moved slightly higher during the U.S. session. When the shouting was over, the pair closed the day higher by less than 20 pips. The pair briefly broke below the 20 day simple moving average but was unable to hold below. U.K. house prices continued to decline in April after unexpectedly rising in March. The average price for a house was 151,861 pounds in April, down 0.4%. U.K. manufacturing PMI will be released tomorrow morning and analysts expect a 40.2 read, up from last month’s 39.1.

The Aussie (Aud/Usd) Risk tolerance turned to risk aversion overnight creating volatility with the aussie throughout the day. U.S. equity markets closed mixed but neither the Dow, S&P nor NASDAQ closed far from the breakeven line, after erasing earlier gains. Gold prices closed lower by more than $10 an ounce helping the dollar to slightly outperform its Australian counterpart on the day. Despite the dramatic move lower, intra-day, the 200 day simple moving average, which was broken to the upside yesterday, managed to hold as support. Australian leading index numbers came in at 0.2% last night, up from the prior month’s read of -0.6%. NAB quarterly business confidence was dramatically higher, coming in at -24 from last quarter’s -42.

The Cad (Usd/Cad) The cad moved lower on Thursday but closed the day off the lows. The pair dropped overnight as the dollar weakened and had a volatile U.S. session as the dollar strengthened overall but the pair was affected by important economic reports from both regions. The Canadian economy contracted at a slower pace in February as the GDP number came in at -0.1%, in line with expectations. Canada’s raw materials price index (RMPI) surged 12.1% much higher than the expected 1.9%, and up from the prior read of 1.6%. On the day, the pair dropped 100 pips after trading in a range of 190 pips.

The Swissy (Usd/Chf) The swissy traded in a wide 165 pip range on Thursday, breaking above the 100 day simple moving average and below the 200 day SMA before closing higher by 45 pips and back between the 100 and 200 day SMA’s. The swissy is a good barometer of the overall strength or weakness of the dollar and the pair endured more volatility than usual as the greenback weakened overnight before staging a strong rally. There were no Swiss economic reports released today and none scheduled for the remainder of the week.

The Yen (Usd/Jpy) The dollar strengthened against the yen on Thursday, despite U.S. equity markets closed mixed, helped by corporate profits being better than expected in April and traders moving back into risk aversion mode, buying the dollar for safety. The pair experienced less volatility than the other major pairs but managed to close higher for the second consecutive day. The pair may have a harder time moving higher from this point as the 20 and 200 day simple moving averages are located just above the current price.