U.S. Equity Markets to Dictate Dollar’s Direction

The theme this morning in the currency markets is risk aversion as Chinese stocks fell nearly 7% overnight triggering a move into the safety of the U.S. Dollar.

The theme this morning in the currency markets is risk aversion as Chinese stocks fell nearly 7% overnight triggering a move into the safety of the U.S. Dollar. Sentiment continues to build that the Chinese government will attempt to curb over capacity in the economy by restricting the practice of reckless lending.

The Japanese Yen is expected to open higher based on the overnight trade. The Yen received a boost after a decisive victory by the country’s opposition party during an election over the week-end.

The GBP USD is trading weaker overnight despite news that U.K. house prices rose for the first time in two years. This is another sign that the economy is mounting a recovery, but probably not enough to make the Bank of England restrict its quantitative easing program.

Weaker equity markets in Asia, Europe and the U.S. is helping to make traders more risk averse thereby leading to selling pressure on the EUR USD overnight. Losses have most likely been limited because of the news that European consumer prices dropped less than economists forecast in August. This news probably solidified the thought that the European Central Bank would not consider applying additional stimulus to the economy.

Weaker crude oil and equity markets are putting pressure on the Canadian Dollar. Strong upside momentum is likely to drive the USD CAD to the last main top at 1.1124. A trade through this level will turn the main trend to up. The first major resistance target is a 50% price at 1.1177.

Falling Asian equity markets are triggering selling in higher yielding currencies. Although their main trends are still up, look for weakness to develop in both the AUD USD and NZD USD. A change in economic policy in China will have a direct affect on both Australia and New Zealand economies.

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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