Appetite for Risk Returns for Forex Traders.

The U.S. Dollar is trading weaker at the midsession.

The U.S. Dollar is trading weaker at the midsession. The sharp rise in the equity markets following better than expected earnings reports from Toll Brothers and Macy’s is helping to renew demand for higher risk assets.

The GBP USD is rising sharply following a four day selloff. Despite the recent break from the high, the main trend remains up. Bullish traders face tough resistance on this current rally as sellers may step in following a 50% retracement of the last move down.

The Euro is also posting gains today. It’s hard to tell if this is fresh buying or short-covering following the recent break. Thin trading conditions could be exaggerating the move to the upside.

The stronger stock market is helping to boost the USD CAD. Traders are either covering shorts or renewing their carry trade positions for the next leg up in the stock market.

The strong stock market is also triggered renewed interest in the long side of the Canadian Dollar. The USD CAD is giving back some of its recent gains following last week’s technical closing price reversal bottom. Look for this currency pair to retrace at least 50% of the recent rally. If the Dollar is truly beginning a recovery then look for fresh buyers to step in on this break.

Stronger equity markets are helping to boost the higher yielding Australian and New Zealand Dollars. Bullish traders have to be careful not to get trapped on the long side of today’s rally. This may only be a short-covering rally in the equity markets rather than renewed risk appetite buying. Traders could get trapped in the AUD USD and NZD USD chasing these markets to the upside.