US Dollar Retraces Lower on Technicals Also Due to Funds Abandoning US Equities - 21.6.2013

Equities were in focus in earlier trading as the US equities closed in red on Thursday session amid the risk sentiment weakened further due to FED intention to reduce QE by end of 2013 and stop it until end of 2014. S&P 500 dropped by 2.50% from 1,631 to 1,588 a more than month low, Dow Jones Industrial Average declined by 2.34% and NASDAQ dipped by 2.28%. Treasury yields were increased in longer term maturities reflecting lower demand on expectation that FED would reduce asset purchases and that further weighed on the US dollar. In addition yesterday Chinese PMI was weaker than expected weighing further on risk, increasing selling pressure on higher yielding currencies. The US dollar index retraced from resistance at 82.11 to 81.57 mainly due to technically being overbought and amid higher Jobless claims than projected, although US dollar is likely to continue appreciating against its major counterparties.

In Asia today, NIKKEI 225 started in negative ground following its US peers but later on was lifted as Japanese government plans to cut corporate tax to support economy and later on Kuroda said that the BOJ policy would be adjusted as needed. The Japanese Yen weakened significantly on Thursday against the US dollar with the USDJPY surging to resistance at 98.27. Greenback’s strength is expected to continue and together with BOJ and Japan’s government fiscal plans the currency pair is likely to approach 100 the following week.

The European currency recovered from support at 1.3160 against the greenback on Thursday evening session, reaching upside cap early today at 1.3254 as Euro zone manufacturing and services PMI were slightly better than forecasted. PMIs possibly triggered a corrective move and thus downside is expected to resume and drive prices to fresh weekly lows. Furthermore, ESM was discussed in Euro group meeting for direct recapitalization of distressed banks, and that would remove potentially debt burden from governments and in turn could help euro zone to return back to growth, limiting a downside mood on EURUSD trading.