Sustained Pressure on Equity Markets to Support U.S. Dollar

Risk aversion returned to the foreign currency markets overnight triggered by a sell-off in Asian equity markets. Early today, it was reported that Japan’s economy grew in the second quarter, but the rate was less than expected.

Risk aversion returned to the foreign currency markets overnight triggered by a sell-off in Asian equity markets. Early today, it was reported that Japan’s economy grew in the second quarter, but the rate was less than expected. Although this news signaled the end of the recession, sellers still felt the need to liquidate long equity positions as the gain did not meet economists’ expectations.

The Chinese market led the sell-off as investors fled stocks for the safety of lower-yielding currencies such as the U.S. Dollar and Japanese Yen. The Japanese Yen is actually up versus the Dollar as investors repatriate funds removed from U.S. equity markets. Investment firms that borrowed Yen to fund the stock rally are now liquidating their equity positions and buying Yen to payback their loans.

The GBP USD also under pressure this morning. This is a combination of technical factors and the news overnight that U.K. home sellers lowered asking prices in August.
The British Pound is still feeling the negative effects of the recent decision to expand and extend its quantitative easing program.

The return of risk aversion is pressuring the EUR USD overnight. Traders are focusing on dumping higher risk assets and are ignoring last week’s positive news regarding the growth in the French and German economies.

Despite not experiencing the recession that affected every major economy and reports that the Reserve Bank of Australia will raise interest rates if the economy continues to grow, the AUD USD is under pressure this morning. Traders received the first clue on Friday that this market was preparing to break when the chart indicated a weekly closing price reversal top had been formed. This morning’s weakness was triggered by a break in the Chinese equity markets and the confirmation of last week’s reversal top.

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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