Demand for Risk Continues to Pressure U.S. Dollar

Although all of the major Forex markets remain inside of their June to July ranges, today’s action indicates that there is still strong demand for higher risk assets.

Although all of the major Forex markets remain inside of their June to July ranges, today’s action indicates that there is still strong demand for higher risk assets.

Today’s market opened as if the U.S. Dollar would strengthen all day. Buoyed by an opinion article by Fed Chairman Bernanke in today’s Wall Street Journal, the U.S. Dollar opened higher. It remained firm throughout the day during the testimony of Bernanke before the Financial Services committee.

Once today’s testimony concluded and traders assessed the damage if any, the Dollar weakened substantially into the close as trader once again sought after higher-risk, higher-yielding assets. The strong surge in the equity markets helped erase almost all of the Dollar’s gains against every major currency with the exception of the Japanese Yen.

The best recoveries were in the Australian and New Zealand Dollar markets were early losses were erased as traders covered shorts and went long in an effort to capture the higher yields offered by these two currencies.

Short-covering also boosted the EUR USD into the close and put this pair in a position to rally further with the high for the year at 1.4337 the next potential upside target.

The GBP USD was able to gain back much of its early loss as the Dollar weakened by still closed lower. British Pound traders are concerned that the economic recovery is stalling and that the U.K. doesn’t have enough money to provide anymore stimulus without blowing out the budget. Traders may continue to press the short-side or at least stop buying at current levels the rest of this week until the preliminary Second Quarter GDP number is released on Friday.

Firm crude oil and the late session rally in U.S. equities kept downside pressure on the USD CAD. The Bank of Canada left interest rates alone and failed to issue a strong statement regarding the current level of the currency. Many traders were looking for the BoC to make a stronger comment regarding the current price level of the Canadian Dollar and its effect on exports.

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

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