Weaker U.S. Equity Markets Could Lead to Rebound in Dollar

The U.S. Dollar is seeing some stability this morning following two days of heavy selling pressure. Appetite for risk seems to have diminished somewhat in Europe and Asia.

The U.S. Dollar is seeing some stability this morning following two days of heavy selling pressure. Appetite for risk seems to have diminished somewhat in Europe and Asia. The Dollar may be posting small gains this morning but still remains vulnerable to downside risk. Renewed questions about the U.S. Dollar’s status as the primary reserve currency are being raised again. Despite signs that the global recovery will be rocky, investors are still creating demand for higher risk assets.

Last night European Central Bank President Trichet once again warned that the financial crisis is not over and how important it is for government policymakers to consider how they will withdraw economic stimulus measures. This seems to be a major sticking point developing between analysts and economists.

Overnight the EUR USD is trading slightly better. This could be a technical reaction to yesterday’s strong breakout to the upside. The GBP USD is also up slightly as traders square up positions ahead of tomorrow’s Bank of England meeting. Investors expect the BoE to leave rates unchanged. The main concern is whether the BoE makes adjustments to its asset buyback program. Last month the BoE shocked the markets by announcing an increase in its quantitative easing program.

The Japanese Yen is called slightly lower. Money could be standing aside as traders await today’s U.S. T-note auction. The Yen has been gaining on the Dollar recently because of the attractive yields offered by Japanese debt.

Weakness in the higher yielding Australian and New Zealand Dollars may be an indication that demand for risky assets may be down today. Overnight Australia announced that retail sales had unexpectedly dropped. This led to selling pressure because of concerns about when the Reserve Bank of Australia would raise interest rates. The New Zealand Dollar is trading weaker ahead of tomorrow’s Reserve Bank of New Zealand meeting. Traders expect the RBNZ to keep interest rates low for the time being.

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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