U.S. Session Recap – July 15, 2014

  • IMF cuts 2014 euro zone growth forecasts
  • Draghi expects moderate recovery to continue but risks to the outlook are on the downside
  • Draghi: strong euro is a risk to recovery
  • Draghi: QE is well within the ECB’s mandate

With no major economic report printed during the U.S. forex trading session, investors traded on risk sentiment and central bank speculations.

The dollar’s price action was a mixed bag of beans on positive earnings reports and speculation ahead of Yellen’s speech this week. It gained on the pound, franc, and yen; fell against the euro and the Loonie, and remained steady against the Aussie and the Kiwi.

EUR/USD had dropped to a session low of 1.3608 before closing at 1.3619 while USD/JPY reached an intraday high of 101.63 before closing at 101.56. Meanwhile, GBP/USD fell below 1.7100 and stayed at the 1.7070 area.

The euro’s price action provided a clearer direction than the Greenback. The common currency remained resilient despite a downgrade in growth forecasts and threats of QE from Mario Draghi.

In its annual report on the euro zone, the IMF cut its 2014 growth forecasts from 1.1% to 1.0%, citing that recovery in the region is “neither robust nor sufficiently strong.” It also encouraged large-scale government purchases, saying that the move “can push up inflation by raising consumption and investment across the euro area.”

Draghi is on the same track as the IMF. Although he expects recovery to continue, he warned that risks to outlook are on the downside. He also said that large-scale asset purchases are within the ECB’s mandate although he also believes that the central bank’s latest policy changes are already doing their job on the economy.

This is probably why the euro still crept up against its major counterparts. EUR/GBP enjoyed a 10-pip jump to .7975 while EUR/JPY tipped an intraday high at 138.46. Even EUR/NZD inched 9 pips higher to 1.5466.

We have a busy day ahead of us with the RBA’s monetary policy meeting minutes and Australia’s new motor vehicle sales scheduled at 1:30 am GMT. This will be followed by the BOJ’s monetary policy statement some time during the Asian forex trading session.

Market players expect more remarks from the RBA on how the Aussie “remains high by historical standards.” Meanwhile, investors expect more optimism from the BOJ although they’ll likely tweak some of their economic forecasts. Watch out for these tier 1 events in case they become game changers for their respective currencies!

See also:

London Session Recap

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