Not all the news was good for the USD, and yet it kept up its strength. The February USD looks positioned to continue its bull run. The technical indicators look bullish and the economic data is strong. Of course, who knows what's on the political horizon? Or how much strength the Euro, Pound or Yen will gain during the next 20 trading days. A roller coaster ride is likely to be the name of the game for February.
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The first week of February is rife with economic news and events. The traders' big event happens on the first Friday of the month. The non-farm payrolls will be released on February 5th. The deficit has hit an all-time high of more than $3 trillion. The Bank of England and the European Central Bank are meeting to make another rate decision. That's just the first week of February.
More economic news is on the way. Any of the expected reports can cause the USD to gain or lose momentum. Ignore the data for a moment and look at the chart below because this picture speaks a thousand words.
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The moving average lines for the EUR/USD currency pair show that the USD is experiencing a long-awaited bullish trend. The 50-day SMA (black) and 10-day SMA (yellow) clearly indicate the USD's strength against the Euro. The 50-day SMA is a very strong and reliable resistance level, and the Euro has moved farther away from it throughout January.
However, the Bollinger Bands® may be the most revealing of the shown indicators. With the volatility rising and falling, the currency pair hits clear areas of support and resistance. Most recently, the currency pair has been walking the lower band, which marks a support level but also indicates the USD's strength.
Before considering, though, that the bulls have complete control of the USD, the Stochastics indicator suggests that the USD is overbought. With that signal established, the bears are well positioned to assert control over the USD as February continues. The Japanese candlesticks also support this conclusion.
Back to the economic data, the USD is likely to move from the release of Nonfarm Payrolls Report. Analysts have theorized that the recession is reaching an end and this report can be one major indication. The January payrolls figure is expected to show a rise from December from losing 85,000 jobs to actually creating 20,000 jobs in January. This information can prove bullish for the USD.
On the European side, the retail sector is expected to show improvement from losing 1.2 percent to gaining nearly half a percentage point in December. This marks a major advance in economic growth and consumer confidence. So, the U.S. and the European data are looking strong. Both currencies could benefit from the strong data. (Learn more in our Economic Indicators Tutorial.)
What can we expect from the USD in February? Traders can expect the USD to make big price movements. However, the Euro is struggling to regain its strength against the USD so the Greenback's upward trend might be difficult. The Euro may receive help from the ECB if the central bank decides to raise rates, though this is not anticipated. The European economy is getting stronger but it is unlikely that a rate hike will happen in February.
The GBP is imitating the Euro but has a longer journey against the USD to regain its position.
The yen is another story. The technical indicators show that the JPY is holding its position against the USD. The JPY has made a strong bullish run against the USD (very similar to the EUR and GBP), but the difference between the Yen and the European currencies is that the JPY is holding onto its gains. That may not bode well for Japanese exports, but it shows that the USD continues to have its challenges even during its wild bull run.
Traders will have different opinions about the overall strength and vitality of the USD. However, traders know that to ignore the data is an exercise in folly and futility. Trends don't last forever, but their impact can be long-lasting.
Source: FXtrek IntelliChart™
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