This article was written by Dwayne Buzzell, a financial analyst with more than two years experience in Forex trading and private investing.
The US dollar has created mass chaos in the financial market from the very beginning of the year 2016. Due to the unstable fluctuation rate of the US dollar, trading the financial instrument against its major rivals has become a tough challenge for traders.
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The most recent nonfarm payroll data and Yellen's speech have given investors some sort of indication that the Fed is most likely to hike its interest rate in the month of September. Though there is a slight chance of a rate hike in this upcoming month, the market is most likely to suffer from indecision due to the sentiment of the big four central banks (FED, ECB, BOJ, and BOE).
The recent US employment report has shaken the minds of investors about the upcoming interest rate hike. The market reacted violently to the major economic news release of employment data for the US.
The mighty dollar slipped against all its major rivals due to the poor data and the investors are in fear that the weakening of the US dollar might continue for a prolonged period of time if the state doesn’t take proper precautionary measures to strengthen its economy. In the near future we can expect low volume trade on US related pairs since lots of indecision is discouraging traders from investing in the mighty USD.
Though the US economy added 151,000 jobs, we can’t expect an immediate rate hike until other parameters are get in line.
The downtick of expectations by 4.8% were crushed by the recent unemployment data which came in at 4.9%.
There has been a rise of 0.1% in the month of August in the average hourly earnings which was also 0.2% below expectations. Since the Fed announced earlier that the interest rate decision is somewhat related to average hourly earnings data and unemployment data, traders should be cautious if they are expecting an immediate rate hike in the US dollar.
The sentiment of investors following the recent NFP news release is mixed. Later the dollar recovered its losses to a great extent by the hawkish lean of the Fed. Until now, the dollar has been performing less well than all its major rivals, except with the Japanese pair.
The USD/JPY has put a nice bullish momentum at the early stage of the morning which further weakens the Japanese yen. To be precise, all the major economic releases have caused choppy moves with the US dollar, associated with the pending interest rate hike decision.
The Nikkei and S&P 500 have gained +0.5% and +0.4% which has also had a positive impact on rating hike decision.
Side by side moderate growth in the European market has also been observed over the recent period. The broadly weaker dollar has been crushed by all major currency pairs, especially by the Aussie and the Kiwi dollar in recent days.
Silver and gold seem to have gotten a boost by NFP news' most recent release, pushing away critical resistance level in the chart. Though the boost was strong, investors are also cautious about its sustainability and further threshold.
Currently, the price of silver has hit $19.12 by overcoming a critical resistance level which should be noted very carefully. The next major resistance lies at $19.20 which could significantly drive down the price of silver.
The medium-term outlook of the EUR/USD pair has been changed to a great extent. Currently, the price action situation also suggests massive indecision in this major pair.
Experts are waiting for a more lucrative trading opportunity and are currently staying on the sidelines to protect their hard earned trading capital.
Technically the momentum of the price is bullish. This is one of the key parameters which might drive market sentiment from bearish to bullish or vice versa with the release of any economic news event.
Currently, the price is trading between the 100-day and 200-day simple moving average which has squeezed the price to a great extent. The bullish momentum of the pair would be confirmed if the price manages to breach the 1.12000 level where the 100-day daily moving average resides.
If the market manages to breach that level with a daily closing above that level than we can expect a long-term weakening of the US dollar in the upcoming days. Alternatively, if the pair breaches the key support zone of 1.1100 level where the 200-day simple moving average lies then we can conclude that the US economy is doing well.
These are the two levels that will also give an indirect indication of the next big move played by the Fed. So it's better to avoid trading at the current price level and wait patiently until the market makes a clear decisive or bullish move.
Summary
There has been much chaos from the very beginning of this year regarding the interest rate decision. Due to several undeniable factors up to now, the US interest rate hasn’t been hiked by the Fed. Researchers strongly suggest that different economic data and unemployment numbers are favoring the interest rate hike decision in the month of September.
The mighty US dollar has struggled to sustain its strength throughout 2016. Average hourly income also goes in favor of an interest rate hike decision. Though there are many other important factors to gauge the economic performance an economy, this month investors are overly cautious about the Fed's decision.
Keeping statistics in mind, it would be premature to sell the US dollar prior to any clear indication of the further delay of such an event. On the contrary, in the absence of a clear overview, traders are advised to take the well-calculated risk before going long in favor of this currency.
