Friendly IMF Report, U.S. Economic News Pressure Dollar

The U.S. Dollar closed lower against most major currencies on Wednesday. The bearish tone was set during the overnight trading session following the release of a report from the International Monetary Fund that showed a reduction in the amount of estimated losses from the financial crisis.

The U.S. Dollar closed lower against most major currencies on Wednesday. The bearish tone was set during the overnight trading session following the release of a report from the International Monetary Fund that showed a reduction in the amount of estimated losses from the financial crisis.

Trading was mixed during the New York session as economic data from the U.S. triggered a two-sided reaction. The choppy trading conditions were created when traders tried to balance the benefits of a better than expected GDP number and a worse than expected Chicago PMI report. In addition to these two reports, investors had to determine what influence if any the ADP Employment had on the economy. The number was better than expected, but none the less reflected further job losses.

Demand for the Dollar was weak throughout the day as traders felt more confident to seek higher yields in more risky assets.

The EUR USD rebounded after sustaining losses earlier in the week. It was reported early this morning that German unemployment dropped to 8% in September from a reported 8.3% in August. This news coupled with the bullish IMF report helped set the tone for today’s rally. News that banks cut demand for one-year European Central Bank loans sent a signal that perhaps Euro Zone banks are healthier than previously reported.

The GBP USD closed higher in a continuation of yesterday’s rally. Favorable U.K. Retail Sales and second quarter GDP Report provided the support earlier in the week. This morning’s bullish IMF report is helped to extend the gains. Based on the chart pattern, the rallies the past two days are most likely strong short-covering.

The USD JPY finished sharply lower on Wednesday despite a statement on Tuesday from the Japanese Finance Minister saying that Japan would not hesitate to intervene against the Yen if a rapid rise in price was triggered by abnormal trading conditions. This comment clarified last week’s statement which indicated the Bank of Japan would allow the Yen to rally without interference.

Stronger demand for higher risk assets helped put pressure on the USD CAD. The Canadian Dollar opened higher this morning, but it was a better than expected U.S. gasoline inventory report that send crude oil sharply higher in a move that spilled over to the currency. Greater demand for gasoline could help crude oil improve which would be beneficial to the Canadian economy.

The Swiss Franc bucked the trend of the other currency markets to finish lower for the day versus the Dollar. Reports that the Swiss National Bank intervened to push down the Franc versus the Euro helped the Dollar gain ground. Traders will be watching to see if the Euro responds or if another round of intervention is necessary.

Demand for higher yielding assets because of the bullish IMF report and mixed U.S. financial reports helped boost the prices of the AUD USD and NZD USD. Traders are also supporting the Aussie in anticipation of an interest rate hike before the end of the year. The Aussie and the Kiwi could soar to the upside tomorrow if trader appetite for risk increases demand for higher yields.

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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