Daily Forex Review: USD Fails to Extend Gains after FOMC – July 31, 2014

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Daily Forex Review: USD Fails to Extend Gains after FOMC - July 31, 2014

The USD had a strong positive forex reaction to better than expected advanced GDP data, which showed that the economy expanded by 4.0% in the second quarter of the year. This was much higher than the estimated 3.1% increase.

However, the currency returned some of its recent gains when the FOMC made its interest rate statement and stopped short of switching to a more hawkish bias. The Fed acknowledged the pickup in hiring and inflation but made a few cautionary remarks while dissenter Charles Plosser failed to draw enough support in tweaking the forward guidance to show clearer clues on when the central bank might hike rates.

The euro had a volatile forex day, as it bounced around during the U.S. trading session. Data from the euro zone was mixed, as the German preliminary CPI came in higher than expected at 0.3% while the Spanish flash CPI posted a 0.3% decline instead of the estimated 0.2% uptick. Spanish flash GDP came in slightly better than expected at 0.6% versus the consensus at 0.5%. German retail sales and unemployment change, along with French consumer spending data, are up for release today but the bigger movers might be the euro zone CPI estimates.

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Fundamentals Forex Review

The pound continued its forex slide lower as there were no reports from the UK to give it any support yesterday. Earlier today, GfK consumer confidence came in weaker than expected as it dropped from 1 to -2 instead of improving to 2. Later on, the Nationwide HPI is up for release and might show a 0.6% increase in house prices, weaker compared to the previous 1.0% gain.

The franc weakened to the dollar in recent forex trading, as Swiss economic data mostly came in weaker than expected. The KOF economic barometer slipped from 100.5 to 98.1 instead of improving to 101.1 while the UBS consumption indicator came in at 2.06, which was still an improvement from the previous 1.80 reading. There are no reports due from Switzerland today as the franc could take its cue from euro movement.

The yen gave up ground to most of its major counterparts after Japan’s preliminary industrial production report showed a worse than expected 3.3% decline. Average cash earnings and housing starts are due for today and another set of weak figures might lead to more yen weakness.

The Aussie got hit by a set of weak figures earlier in the day, as building approvals marked a 5.0% drop while import prices declined by 3.0% Canadian GDP is up for release later on and might show a 0.3% monthly economic expansion. No other reports are due from the comdoll economies today.

To contact the reporter of the story: James Brennan at james@forexminute.com

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.