U.S. Unemployment Claims Data to Drive USD Trading Today

The market is set to go increasingly volatile today on the publication of U.S. Unemployment Claims at 12:30 GMT and the Philly Fed Manufacturing Index at 14:00 GMT, and Treasury Secretary Timothy Geithner's speech at 13:30 GMT . In turn this economic news will help determine the strength of the Dollar versus its major currency pairs going into end of week trading. In order to take advantage of the forex market now, traders are advised to start opening their USD positions now, prior to the release of this crucial data.

USD - USD Weakens on Weak U.S. Inflation Data

The Dollar fell for a second day against most major currencies on Wednesday after lower than expected U.S. inflation data reduced speculation the Federal Reserve would raise Interest Rates in the near future. The Dollar was at ¥95.78 Wednesday, down from ¥96.62, and at $1.3955 per EUR. The Dollar was at 1.0793 Swiss Francs, down from 1.0865 Swiss Francs.

Rising equity markets and positive economic data in recent months had led to speculations the U.S recession will end soon, and the Federal Reserve will need to raise Interest Rates by the end of the year. Concerns of rising inflation have also helped fuel these speculations. However, the U.S. Consumer Price Index (CPI) increased only 0.1% in May, falling 1.3% in the past 12 months, the biggest decline in almost 60 years.

Federal Reserve Board officials may be using next week's policy statement to suppress any speculation of an upcoming Interest Rate increase. This may signal that the underling U.S economy is still weak, resulting in long term downward pressure on the Dollar. Adding to the downward pressure on the currency are concerns over the Dollar's role as a global reserve currency as the leaders of Brazil, Russia, India and China, known as the BRIC group, called for a "more diversified international monetary system” Wednesday.

With several important economic indicators to be released Thursday, including U.S Unemployment Claims at 12:30 GMT, GBP Retail Sales at 8:30 GMT, and the SNB Monetary Policy Assessment at 7:30 GMT, traders can expect a volatile trading day, and a possible continuation of the Dollar's downward trend.

EUR - EUR Jumps On Increased Optimism

The EUR strengthened against the Dollar Wednesday after the release of disappointing U.S. data. The EUR closed at $1.3947 from $1.3863, and at ¥133.68 from ¥133.98. The Pound Sterling weakened as much as 1.2% to 85.36 pence per EUR yesterday, the biggest decline since June 4, but was little changed against the USD at $1.6391 from $1.6410 Wednesday.

The Pound's drop came after a retreat in the stock market and Bank of England (BoE)) Governor Mervyn King's speech stating that Britain's banking system may need to raise more capital to finance the economic recovery amidst a unanimous vote by BoE officials to continue their asset purchasing program.

A rise in a number of U.S stocks helped drive the EUR higher versus the Dollar, improving risk appetite in general, and reducing the Dollar's demand as a safe-haven. A report showing the U.S. current account deficit narrowed in the first quarter added to optimism in the currency market.

Traders should pay attention to the release of the U.S Unemployment Claims at 12:30 GMT, GBP Retail Sales at 8:30 GMT, and the SNB Monetary Policy Assessment at 7:30 GMT, as the results will determine the direction of the EUR, GBP and CHF for the newt few days.

Yen - Yen Rises Against the USD

The Japanese currency rose against the USD Wednesday, benefiting from its safe- haven status as Standard & Poor's (S&P) downgraded or lowered its outlook on almost two dozen U.S banks. The Dollar was at 95.78 Yen yesterday, down from 96.62 Yen. This came one day after S&P said European banks face higher credit losses, a statement that also resulted in gains for the JPY.

As the economic outlook is still positive overall, the Yen fell against most other major currencies since the Yen is often used as a funding currency for higher yielding assets. A report showed that Japanese investors have purchased more oversees assets than they sold also added to the downward pressure on the Yen.

Crude Oil - Crude Oil Rises on Improved Demand

Crude Oil for July delivery rose 48 cents to end trading at $71.51 a barrel on Wednesday. In a volatile trading day, Crude closed higher after a mixed Energy Department report showed a bigger than expected drop in Crude supplies, and an increase in gasoline demand along with higher than expected rise in inventories. Signs of improving Oil demand offset the negative side of the report. Options expiration also played a role in the rally as July options expired Wednesday.

Crude's rally over the past several months was supported by a weakening Dollar, and fears of inflation that pushed investors to buy commodities as a hedge. However, concerns of inflation in the near future subsided as the U.S. CPI (Consumer Price Index) increased by only 0.1%. As Crude inventories remain at very high levels, and the USD is showing signs of stability, another rally for Oil may be unlikely in the short-term.

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