U.S. Update: Dollar testing year lows

What happened in Asia and Europe

After late U.S. session strong dollar bearish rally, majors spent most of Asian session consolidating around New York closing levels. Japanese yen lost some ground against dollar and Euro, as Japanese importers bought the two currencies ahead of their month-end book-closing. But rallies did not hold as weak Asian share markets encouraged short-term investors to buy back the safe-haven yen.

Early Europe, dollar remained consolidating close to year lows against most rivals, as data supported European currencies: in the U.K. economy contracted 0.7% showing the fall in GDP was less than the 0.8% previously calculated last month. Anyway, report also show that the economy shrank 5.5% from a year ago, the most since records began in 1955.

In Europe, confidence in the economic outlook increased more than economists forecast in August, adding to signs ending recession; a consumer sentiment index of the euro zone rose to 80.6, the highest since October, from 76 in July.

However major pairs were mostly in an overbought state, as well as American indexes (that reached fresh year highs before the opening bell) and crude oil were also overbought, signaling that a strong move to the upside in majors was quite unlikely.

Data in the U.S. show consumer spending edged up in July but incomes, were flat. Consumer spending is key when talking about the economy attempts to emerge from recession; meanwhile University of Michigan index was revised up to 66.6 for July, yet less than July reading of 70.5. Not very encouraging data send Wall Street down from earlier highs, still in positive territory at this point.

With Gbp still being the weakest currency across the board, Gbp/Usd quickly fell under 1.6300 following stocks. No doubts, the pair holds the bearish tone despite general risk appetite sentiment.

Euro however, continues holding above key 1.4340 area, and the bias remain bullish as long as the pair continues in current levels. That’s also keeping USD/CHF under pressure, as the pair barely holds above the 1.0550/1.0520 level. Despite previous interventions by SNB should not attract sellers at this point, bearish tone persists.

Japanese Yen remains strong ahead of general elections, unable to regain the 94.00 despite whatever stocks do. Won’t be a surprise if the pair opens next Asian session with some huge gap.

What to expect

With summer about to end, would be interesting to see what will happen when liquidity returns to market; would market players take profits from this year lows, or will dollar bearish trend finally set to stay? After three months of more or less narrow ranges, will majors finally break or will they remain struggling to find a direction? Hopefully, the answers will be here in a couple of weeks.

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