Weaker Equity Markets Could Turn U.S. Dollar Higher

Although the U.S. Dollar is trading weaker overnight, a sell-off in the equities markets today could flip traders to the bull side of the Dollar as traders will turn their fear of holding risky assets into greater demand for the safety of the Dollar.

Although the U.S. Dollar is trading weaker overnight, a sell-off in the equities markets today could flip traders to the bull side of the Dollar as traders will turn their fear of holding risky assets into greater demand for the safety of the Dollar.

The GBP USD is called better this morning. On paper the U.K. economy looks lousy because of slow growth and a huge deficit, but there is talk this morning that the Bank of England may actually take the initiative and be the first central bank to raise rates.

Optimism about a recovery in the Euro Zone economy is helping to support the EUR USD. Although this currency pair is finding resistance at the June high at 1.4337, there doesn’t seem to be any sellers out there at this time. A break in equity markets and crude oil could trigger a profit-taking break later in the trading session.

Stronger crude oil and equities markets are also helping the Canadian Dollar as the USD CAD is already trading at a new low for the year. This market is oversold and is ripe for a reversal bottom. If there is no strong follow-through to the downside, then look for a late session turnaround in the U.S. Dollar.

Despite a bearish Dollar scenario, look for the USD CHF to remain range bound. Traders seem to be reluctant to get aggressively long the Swiss Franc out of the fear that the Swiss National Bank may intervene at any time.

News that Japanese companies may be starting end of the month repatriation of profits is helping to support the Japanese Yen versus the Dollar this morning. The sharp drop in the value of the Yen has helped export markets, which is leading corporations to send money back to Japan. Weakness in equity markets could trigger an even stronger rally.

Both the AUD USD and NZD USD are near highs for the year. The inability of the equity markets to rally to new highs for the year today or the start of a substantial correction could lead to weakness in these two currency pairs by the end of the session.

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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