Dollar Climbs Following Impressive GDP Numbers

The dollar continued to climb higher following an impressive set of GDP numbers, but its gains were held back by the Federal Reserve’s statement. The US dollar was particularly strong against the Japanese yen, as it rose to 102.72 from around 102.11 the previous day. The Aussie was also a victim of dollar strength, as it fell to 0.9322, after briefly touching 0.9301 following weaker-than-expected building approvals in Australia during June.The Sterling and the euro also posted small losses but managed to recover from bigger drops earlier in the face of the strong data that helped the dollar.

The US GDP for the second quarter climbed to 4% from a 2.1% contraction the first quarter. This was much stronger than economists expected, although the 4% figure was boosted by a 1.7% inventory accumulation. The final sales GDP, which excludes inventory buildups and drawdowns, came in at 2.3%, which according to economists represents the economy’s trend growth rate presently. The dollar would have risen even more were it not for the Federal Reserve statement. In the statement, the Fed governors stressed the degree of spare labor resources in the economy, while also nodding that inflation was moving towards target. The Fed did decide to continue with tapering by removing another 10 billion dollars from its monthly stimulus. Interest rate rises would take “considerable time” according to the Fed, following the end of tapering probably sometime in the fall.

Dollar traders are now firmly focused on the US employment report for July, which comes out tomorrow. A strong report would probably see the dollar extend its gains. Looking ahead to the remainder of the day, euro traders will get a chance to react to Eurozone flash inflation for July and unemployment for June. Inflation and unemployment are expected to hold at 0.5% and 11.6% respectively. As the euro was already sold aggressively in previous sessions, its oversold condition made it more difficult for it to be pushed even lower for now.

The USD/JPY rallied sharply on Wednesday to break above its 200 - day moving average at 102.03 to break above the key 103 level and hit its highest level since early April. The pair is currently at 103.07 early on Thursday and is approaching the April 8 high of 103.10 which will be a near-term resistance level. This is also where the top of the daily Ichimoku cloud lies. The 50% Fibonacci retracement level of the early 2014 high from 104.11 to 100.81 (May 21) acts as support at 102.45. The market has risen above the daily Ichimoku cloud and the tenkan-sen and kijun-sen lines are turning back up, adding to the bullish bias. RSI has given a bullish signal after breaking above 50 into bullish territory.