Forex Today: Market focus shifts to US consumer sentiment data
Here is what you need to know on Friday, May 16:
Markets adopt a cautious stance early Friday and the US Dollar (USD) finds it difficult to stay resilient against its major rivals. April Housing Starts and Building Permits data will be featured in the US economic calendar. Additionally, the University of Michigan will publish the preliminary Consumer Sentiment Index for May.
US Dollar PRICE This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.37% | -0.04% | -0.67% | 0.40% | -0.16% | 0.21% | -0.02% | |
| EUR | -0.37% | -0.28% | -0.47% | 0.51% | 0.08% | 0.33% | 0.09% | |
| GBP | 0.04% | 0.28% | -0.04% | 0.81% | 0.38% | 0.53% | 0.37% | |
| JPY | 0.67% | 0.47% | 0.04% | 1.06% | -0.13% | 0.02% | 0.41% | |
| CAD | -0.40% | -0.51% | -0.81% | -1.06% | -0.30% | -0.19% | -0.42% | |
| AUD | 0.16% | -0.08% | -0.38% | 0.13% | 0.30% | 0.14% | -0.03% | |
| NZD | -0.21% | -0.33% | -0.53% | -0.02% | 0.19% | -0.14% | -0.26% | |
| CHF | 0.02% | -0.09% | -0.37% | -0.41% | 0.42% | 0.03% | 0.26% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
The USD Index edged slightly lower in the American trading hours on Thursday after the Bureau of Labor Statistics reported that the Producer Price Index rose 2.4% on a yearly basis in April, compared to the 2.7% increase recorded in March. Other data from the US showed that Retail Sales increased 0.1% on a monthly basis in April, while the weekly Initial Jobless Claims came in at 229,000 to match the previous reading and the market expectation. After losing 0.2% on Thursday, the USD Index stays on the back foot and declines toward 100.50 in the European morning on Friday. In the meantime, US stock index futures trade mixed.
The data from Japan showed that the Gross Domestic Product contracted at an annual rate of 0.7% in the first quarter. This print came in worse than analysts' forecast for a 0.2% contraction. After closing in negative territory for three consecutive days, USD/JPY stays under bearish pressure and trades at a fresh weekly low slightly above 145.00.
Gold staged a decisive rebound in the second half of the day on Thursday and gained nearly 2%. XAU/USD reverses its direction on Friday and falls toward $3,200.
EUR/USD stays relatively quiet and continues to move up and down in a narrow channel near 1.1200 in the European morning on Friday. Eurostat will release Trade Balance data for March.
GBP/USD gained more than 0.3% on Thursday and erased Wednesday's losses. The pair seems to have entered a consolidation phase at around 1.3300.
The Reserve Bank of New Zealand reported that the Inflation Expectations edged higher to 2.29% for the second quarter from 2.06% in the previous quarter. NZD/USD rises more than 0.5% on Friday and trades above 0.5900.
Manufacturing Sales in Canada declined by 1.4% on a monthly basis in March, Statistics Canada reported on Thursday. USD/CAD trades marginally lower on the day near 1.3950 after posting small losses on Thursday.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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