Market sentiment shifts

  • US dollar regains its footing and rallies
  • Oil prices plunge
  • ECB puts more pressure on Greece to play nice
  • Commodity based currencies in retreat

Sentiments do shift fast in the foreign exchange market.  The US dollar regained its footing yesterday and perked up against most major currencies. During the first part of this week, it had been under pressure amid a string of disappointing economic data and a surge in crude oil prices.

The dollar began to strengthen after a much needed release of a better than expected Institute of Supply Management (ISM) nonmanufacturing index report.  The ISM reported that its nonmanufacturing index edged up to 56.7 in January after falling 2.3 points in December, reflecting respectable growth in service industries like accommodation, food services, finance insurance, whole sales trade and health care.

Some of the ISM survey respondent have commented:

  • “Construction demand is growing.” (Construction)
  • “Business is turning up slightly.” (Health Care)
  • “General business activity remains consistent with past months…” (Wholesale Trade)
  •  “Start of the year is off to a great start…” (Professional Services)

feb-5 graph

Yesterday’s dollar pick up gained additional momentum when WTI crude oil price suddenly plunged by 9 percent to $48.45 a barrel after the U.S. Energy Information Administration (EIA) reported that US crude inventory rose by 6.3 million barrels last week to 413.06 million barrels.

The current oil inventory level is the highest since the EIA began its reporting back in 1982.  And the drop in oil price yesterday was the largest one day percentage drop since November. Consequently, the drop in oil price pulled commodity based currencies such as the Canadian and Australian dollars lower, leaving the US dollar as one of the most attractive currencies to hold for the day.

There is no major US economic report or event scheduled to be released today. However, yesterday’s whipsawing currency volatility suggests that the market remains apprehensive. Analysts will be looking to tomorrow’s January Employment Report to gain more clarity and confidence about the direction of the US dollar in the coming weeks.  Stay tuned.

EUR-USD fell back to 1.1340 overnight after peaking at a new two-week high of 1.1534 yesterday morning.  The European Central Bank abruptly rescinded its acceptance of Greek bonds in return for funding.  This action shifts the burden to the Greek central bank to provide emergency liquidity to its banks in the coming months and thereby pressure a new Greek government to not abandon its aid-for-reform program.  The uncertainty surrounding the Greek debt issue will continue to pressure the euro.

GBP-USD has settled into a narrow range of 1.5200 – 1.5170 ahead of the Bank of England monetary policy decision this morning.   Most analysts expect no interest rate change ahead of the upcoming general election.

USD-CAD rose back to 1.2560 as crude oil prices retraced yesterday.  If oil prices continue to erode today then the currency pair could go higher.

AUD-USD has recovered from a plunge to 0.7635 after the unexpected interest rate cut by the Reserve Bank of Australia on Tuesday and rose to 0.7800 overnight. However, falling oil prices and disappointing retail sales in December are putting renewed pressure on the Australian dollar this morning.

Have a great day!