The foreign exchange markets have seen an unpredictable and destabilizing period fueled by a cocktail of fundamental economic reports and technical analysis. On the currency market, the U.S. dollar faced intense headwinds, most notably against the Chinese yuan (CNY) and the Canadian dollar (CAD). Yet, it faltered to retain its value in the market. The strength of the British pound (GBP) and the Australian dollar (AUD) continued to buoy themselves as they churned their respective gains. Simultaneously, the Euro (EUR) started showing strong signals of bullish movements.
During the dollar’s subsequent three trading sessions, the dollar was rebuffed hard at resistance right above CNH7.1955 against the CNY. The pressure built as traders blindly drove the greenback down to about CNH7.1835. This decline represented a new session low reached in North American afternoon trading. The continuing dollar weakness against the yuan is a symptom of U.S. economic malaise, as seen by foreign investors.
The GBP showed significant strength too, as the British pound got up to a high around $1.3310 last Friday. This increased development came on the heels of a surprisingly bad U.S. jobs report that led many to doubt the resilience of the American labor market. This encouraging view of the GBP indicates that the currency can weather the storm, even as global economic uncertainties persist.
At the same time, the AUD continued its comeback that started late last week. Earlier this morning specifically, it broke through some key technical barriers. It cleared the 50% retracement level and 20-day moving average in the vicinity of $0.6520, jumping as high as $0.6540. This trend of increasing equities reflects developers’ growing confidence in the Australian economy, further supported by an expanding trade surplus. Australia’s June trade surplus increased to A$5.37 billion, a significant rise from a revised A$1.60 billion in May, further supporting the currency’s strength.
The CAD, on the other hand, fell short of its peers even with a ~0.25% advance on weaker U.S. dollar developments. At one point yesterday, the dollar was just a shade under CAD1.3730. It drifted sideways through the 20-day moving average and the 50% retracement of the July 23 advance, near CAD1.3725. The loonie is still able to firm up today. This is happening all as oil prices are on the rise and the Fed is still debating raising interest rates.
The Mexican peso (MXN) continued to strengthen. This occurred despite the fact that the U.S. dollar fell for the second day in a row and four of the past five trading days versus the peso. Market participants await Mexico’s July Consumer Price Index (CPI) figures, with expectations that the central bank will cut the overnight rate by 25 basis points to 7.75% later today. Such moves would have a powerful additional stampede effect on the peso’s future performance against the dollar.
The EUR continued its upward trend, rising as high as almost $1.17. It broke above the 50% retracement and the 20-day moving average. Daily momentum indicators are bullish, pointing to the potential for additional near-term upside. The trendline connecting last month’s two highs is found near $1.3465, which represents the 50% retracement of last month’s losses, indicating key resistance ahead.