US Dollar Rallies on Strong Data

USD weekly outlook

The US dollar advanced against a basket of world currencies on Wednesday, as stronger than forecast economic data supported expectations for a solid economic recovery in the second quarter.

The US dollar index, a trade-weighted average of the dollar against a basket of six currencies, advanced for a second straight day, reaching a high of 96.19. It would subsequently consolidate at 96.05, advancing 0.6%. The dollar has traded choppily over the past five days as the Greek debt crisis weighed on the global financial markets.

Stronger economic data underpinned the dollar on Wednesday. Payrolls processor ADP said the US economy added 237,000 private payrolls in June, well above forecasts calling for 218,000. The June increase was also the highest this year, a sign the US labour market continued to firm after a choppy first quarter.

US manufacturing output also improved in June, the Institute for Supply Management said. The ISM manufacturing PMI rose to 53.5 in June from 52.8 in May, as 11 of 18 manufacturing sectors reported growth.

Separately, the Commerce Department said US construction spending rose to a six-and-a-half year high in May, reflecting gains in private residential and non-residential projects. Construction spending increased 0.8% in May following a 2.1% increase the previous month, official data showed.

The US dollar strengthened against the euro on Wednesday, as the EUR/USD fell to a session low of 1.1060. The pair would consolidate at 1.1096, declining 0.4%. Initial support is likely found at 1.1085, followed by 1.1032. On the upside, resistance is likely found at 1.1218, followed by 1.1298.

The EUR/USD is likely headed much lower, according to Goldman Sachs. The multinational investment bank said that in a year’s time the euro could be worth just 95 cents US.

The International Monetary Fund (IMF) confirmed on Tuesday that Greece had missed the deadline for a €1.6 billion payment, making Greece the first developed country to enter arrears with the international lending institution. Tuesday was also the final day of Greece’s bailout extension. Without a new agreement, Greece is at risk of leaving the euro.

The US dollar also rallied against the Japanese yen, as the USD/JPY climbed to a daily high of 123.25. The USD/JPY later consolidated at 122.96, advancing 0.5%. The pair faces initial support at 122.40, today’s low. On the upside, initial resistance is likely found at 123.20, the high from June 29.

Elsewhere, the US dollar advanced to a two-week high against the British pound, as the GBP/USD fell 0.6% to 1.5628. The pair faces immediate support at 1.5615 and resistance at 1.5732.