Higher Energy and Equity Markets Drive Dollar Lower

The U.S. Dollar is trading lower against most major currencies overnight. This weakness is a continuation of yesterday’s action which saw the Dollar settle lower after a late session surge in U.S. equity markets and crude oil.

The U.S. Dollar is trading lower against most major currencies overnight. This weakness is a continuation of yesterday’s action which saw the Dollar settle lower after a late session surge in U.S. equity markets and crude oil.

Yesterday it was reported that U.S. Second Quarter GDP eased to a 1% decline after posting a drop of 6.4 % during the first quarter. Today traders will react to July Personal Income and Spending. These reports are expected to show declines as consumers continued to hold on to their money. Michigan Sentiment will also be reported. The forecast is for an increase in consumer confidence because of the strong rise in equity markets.

Overnight a report showed that the U.K. economy contracted less than previously estimated in the second quarter. Economists had been forecasting a decline of 0.8% for the U.K. Second Quarter GDP. The actual number showed a smaller contraction at 0.7%. Some analysts feel that this is a sign the worst of the recession may be over. Look for a follow-through to the upside in the GBP USD following yesterday’s reversal bottom.

Look for a higher opening in the EUR USD this morning. It looks as if traders are beginning to lean on the Euro to recover from the recession before the U.S. Dollar.

Stronger equity markets overnight are helping to put pressure on the Japanese Yen as traders may be renewing their interest in the carry trade. For almost the entire month of August, Japanese investors have been repatriating funds out of fear of a correction in U.S. equity markets. Japanese investors have also been buying Yen because of the possibility that Chinese financial officials will cut liquidity in order to clamp down on over capacity and reckless lending practices.

The inability to break the Canadian Dollar through support despite bearish comments from a Bank of Canada official earlier in the week has triggered a short-covering rally overnight. The BoC is concerned that a high priced Canadian Dollar will hurt economic growth.

Demand for higher yielding assets surged late yesterday leading to a rebound in the AUD USD and NZD USD. A follow-through rally in both crude oil and equity markets today could lead to an extension of the gains. Thin end-of-the-summer trading conditions are making traders flip between demanding more and less risk aversion. This is triggering the choppy two-sided trade.

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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