Weak U.S. Economic Data Pushes EUR/USD Over 1.38

New York (Oct 24)  A decline in the U.S. Dollar boosted demand for foreign currencies and commodities this morning as concern that U.S. economic growth was negatively affected by the government shutdown continued to fuel bets the Federal Reserve would push its tapering plan into 2014.

This morning, U.S. weekly jobless claims fell to 350K from 362K. This, however, was higher than the estimate of 340K. Flash Manufacturing PMI fell more than expected to 51.1. The previous number was 52.8. Investors were looking for a decline because this report reflected the impact of the government shutdown and debt ceiling debate.

The EUR/USD continued to rally on the heels of a sluggish U.S. economy. The rally put the Forex pair in a position to challenge the major 61.8% retracement level at 1.3833. Although there may be a technical bounce following the first test of this level, unless there is a complete recovery in the U.S. Dollar, look for the Euro to continue to rise over the near-term.

The GBP/USD also moved higher, but investors were a little tentative about buying so close to the double-top at 1.6247 and 1.6259. Investor bullishness appears to be waning since yesterday it was revealed that the Bank of England’s Monetary Policy Committee voted unanimously to keep interest rates at historically low levels. Bullish investors have been trying to build a case for the central bank to end its loose monetary policy sooner than expected, central bankers have not be swayed by the economic data.

British Pound investors are going to have to decide to whether to increase their long positions at this lofty price level because of the weaker dollar or back away while heeding the advice of the BoE that the U.K. economy is not strong enough to support a high priced currency.

The decline in the U.S. Dollar also drove up December gold. The weaker Greenback is making oversold gold more attractive to foreign investors. In addition, speculators may be increasing their long positions as a possible hedge against a drop in the stock market.

Technically, the main trend is up in gold on the daily chart, but the market is finding solid resistance at a major 50% level at $1342.50. A break through this level should trigger a quick rally into a downtrending Gann angle at $1354.00. Eventually, gold should test the Fibonacci level at $1364.09 if investors can sustain a move over $1342.50.

After posting an early gain, December Crude Oil declined following the release of the weak PMI data. Crude oil traders pressured prices on the thought that a weakening economy will trigger a drop in demand and increase supply. Now that the market has broken through the Fibonacci level at $98.17, this price is new resistance.