North Korea's latest nuclear test pulled cash into the perceived safety of the Japanese yen and U.S. dollar on Friday, at the end of a week that has provided little clear direction for currency investors returning from U.S. and European summer breaks.
The U.S. dollar staged a broad-based rally on Thursday to make back some of the losses it had suffered earlier in the week--which had been on the back of a poor ISM services PMI readin--and last week’s disappointing jobs report. From a technical perspective, the Dollar Index’s rebound on Thursday should not have come as a major surprise.
The dollar fell to its lowest in more than a week against the yen on Wednesday as subdued U.S. data made an interest rate increase this month unlikely and drove investors to cut favorable bets in the greenback.
Dollar bears were unleashed on Tuesday following the disappointing U.S. ISM services data which dented hopes over the Federal Reserve raising U.S. interest rates in September. The ISM non-manufacturing PMI for August came in at 51.4, making it the lowest since February 2010 consequently rekindling concerns over the health of the U.S. economy.
World stocks hit their highest in more than a year and the dollar fell sharply against the yen on Wednesday as expectations of a rise in Federal Reserve interest rates receded after weak U.S. economic data.
Price action ended the July 2016 trading (i.e. the response to the May spring) with a clear indication that prices were headed toward an important long term “inflection point.” Additionally, because of the preceding poor price action within the new trading range following its development after the January 2015 high--and importantly, after the “retest” and “lower high” in December 2015--a bearish bias had been created.