Asian and European Stock Market Recoveries Pressure U.S. Dollar

The U.S. Dollar is under pressure as the equity market recoveries in Asia and Euro are making investors less risk averse.

The U.S. Dollar is under pressure as the equity market recoveries in Asia and Euro are making investors less risk averse.

Global equity markets are rising overnight as the People’s Bank of China promised to maintain its loose monetary policy designed to support its economic recovery. The day before the Shanghai Composite Index sold off 5% on the fear that China’s central bank would apply quotas to control credit growth. The news is making equity investors less risk averse. Adding to the bullish sentiment in the equity markets is the news that European telecom earnings have been coming out better than expected.

The EUR USD is showing gains overnight. European confidence in the economic outlook increased more than economists expected in July. This is another sign that the recession may be bottoming out. Gains could be limited to the upside as unemployment rose in July. This news may keep consumer sentiment down because of employment uncertainty.

The British Pound is trading sharply higher. The strong recovery in the GBP USD has erased all of yesterday’s losses and is now in a position to challenge the last main top at 1.6585. News that U.K. house prices climbed in July is the catalyst behind the rally.

The stronger equity markets are pressuring the Japanese Yen overnight. Despite the strength in the stock market, however, the USD JPY is battling a technical resistance level at 95.31. Furthermore, this currency pair has been unable to pierce the last swing top at 95.38 for four days. A breakout over this price should trigger a quick rally to 96.15.

The USD CHF is giving back some of the gains from yesterday’s strong surge to the upside. This is disappointing because upside momentum indicated there was enough power to breakout above the 60 day top at 1.0986. If the Dollar weakens, then look for the USD CHF to possibly drift back to 1.0805.

The USD CAD is giving back some of its gains from yesterday because of the increased strength in crude oil and stock prices overnight. Yesterday’s action helped create a new swing bottom at 1.0748 but not a change in trend. This means that a break through this bottom is likely to trigger an acceleration to the downside.

The sharp rise in the global equity markets is helping to trigger a strong rally in the AUD USD. This market is in a position to erase all of yesterday’s losses and perhaps test the high for the year made earlier this week at .8337. Increased demand for risk and clarity regarding China’s credit situation is helping to make traders less risk averse this morning.

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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