Late Demand for Risk Pressures Dollar into Close

What started out to be a sideways day ended with the U.S. Dollar taking another hit as investors renewed their quest for risk late in the trading session and into the close.

What started out to be a sideways day ended with the U.S. Dollar taking another hit as investors renewed their quest for risk late in the trading session and into the close.

Even before the U.S. Forex trading session started there were signs that today would be an unusual day as stories were circulating that CIT Group would file bankruptcy following the news that the U.S. government would not provide assistance to them. This triggered an almost immediate flight-to-safety rally as traders flocked to the U.S. Dollar and Japanese Yen for safe-haven protection.

Later in the morning session but prior to the New York opening JP Morgan Chase announced better than expected earnings. This news froze the markets as it created a desire for risky investments but traders were still worried about the CIT news.

Throughout the trading session, upside momentum began to build when finally the equities markets took off to the upside triggering a break in the U.S. Dollar. The Japanese Yen which had been trading higher most of the day reversed to the downside as investors once again sold in an effort to draw a better yield.

Higher-yielding currencies such as the New Zealand and Australian Dollars also posted gains as traders chased these markets higher into key retracement zones. Retaking these technical levels would be strong signs that these currency pairs will test new highs for the year fairly soon.

In economic news, the U.S. Initial Claims report showed that more jobs were lost. This helped weaken the Dollar as traders looked toward the British Pound and Euro for better appreciation. Both of these markets are also at or approaching key retracement levels that will dictate the direction over the next few weeks.

Despite a rebound in crude oil prices, the Canadian Dollar was unable to overcome technical resistance and traded flat to lower into the close.

Looking at the chart patterns, it appears that the clash the next few days will be between the fundamental and the technical traders. Both types of traders can build both bullish and bearish cases. On the bullish side, the desire for better returns driven by better than expected U.S. earnings reports is helping to support the current rally. Bearish technical traders cite the fact that the major currencies are merely making retracements and not new highs for the year as two reasons why they are vulnerable to a correction from current levels.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

Disclainer: