Major Currency Pairs Likely To Consolidate Amid Event Risks

The US dollar is consolidating the trading intraday range after moving higher on the weaker EURO and UK data this morning (Wednesday).  The declines were stopped however, when the US released their economic data for the day.  True to form, the US employment data from ADP and Challenger, along with  non manufacturing ISM data (37.3 versus expectation of 42.0) were weaker.  This has the market confused as to currencies directions.  So the bottoms remain secure for the GBP/USD and the EUR/USD but the topsides don’t show huge promise either.

The dilemma the markets face is the expectation of rate cuts in the UK and Eurozone area tomorrow (Thursday).  This should pressure the currency as those regions yields remain higher than US yields.  However, on Friday the US Unemployment report will be released and the expectation is for the US to lose 325k jobs - the weakest reading since 2001.  On the surface, the report should weaken the dollar.  However, it should also lead to another move into the safety of US treasuries (and out of stocks).

In the past this action strengthened the dollar.  However, with US yields down so low, the flows may start to look toward higher yielding government debt like UK or German debt.

The question becomes “What is priced in?” and “What will the price action focus on?”.  Given the uncertainty of that question, the risks for trading increase.  When this happens, the markets tend to consolidate and are likely to move up and down, as opposed to trending.  As a result, the time is ripe for trading, but the time for a trending market is probably not likely.

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