As detailed here on Thursday morning, the foreign exchange market experienced extreme volatility. The EUR/USD currency pair remained below 1.1650 after two mixed bag economic releases in the United States. Thereby, GBP/USD was keeping gains in the uptrend on the level of 1.3400 or above, supporting this trend by falling long-dated yields on UK gilts. These recent movements in these currency pairs are just one illustration of how economic indicators and fear always work together to profoundly affect market sentiment.
In yesterday’s trading session, EUR/USD moved slightly lower on the day, holding under 1.1650 for most of the day. The drop came after the release of US economic data. That data revealed private sector payrolls growing by the smallest margin in four months during August. As disappointing as those payroll numbers were, they were offset a bit by other factors. At the same time, ISM’s Services Purchasing Managers’ Index (PMI) gained ground, climbing to 50.1, up from the last measurement of 52. This constellation of data was enough to lend significant support for the US Dollar, capping considerable upside potential for EUR/USD.
The SAGB/USD had the most encouraging signs of stability. It continued to trade inside a consolidation range, keeping above the 1.3400 psychological level. That relative strength is coming from a decline in yields on long-dated UK gilts. This drop helped to alleviate fears of a dramatic, lasting disruption in the bond market. The deflationary sentiment towards UK gilt yields has ensured a better backdrop for GBP/USD. Hence, GBP/USD has been able to hold up and/or trade within today’s range.
Economic analysts have been watching these developments very closely as they can have huge impacts on investor sentiment and trading strategies. The market usually over-reacts to US macroeconomic indicators and policies. This shows further how sensitive currency pairs are to positive and negative news, thereby affecting the general trend direction.
Even with all of the mixed signals from the US data, the US conducted a miraculous search and recovery to remain afloat against the Euro. Payroll growth disappointed with a lower-than-expected figure. On the other hand, some mildly positive movement on the services PMI shows that the economic picture is complicated. Slow growth doesn’t have to mean scary growth.
As the news sinks in and traders continue to determine their positions, it is important to realize that “real-time quotes” can change dramatically within seconds in fast-moving markets. According to industry sources, “Real-time quotes may not be accurate as prices and trades move so quickly that there can be significant price differences between the quotes received.” This underscores the importance of understanding market conditions when trading.
Additionally, using limit orders can be a good approach for all traders looking to hedge risk. As explained by experts, “A limit order establishes a ‘buy price’ at the maximum you’re willing to pay, or a ‘sell price’ at the lowest you are willing to receive.” By using limit orders, you can avoid being surprised by sudden or extreme price changes.