IMF Reports Weakens Demand for U.S. Dollar

The U.S. Dollar is down substantially across the board as an International Monetary Fund Report encouraged traders to lighten up their recent long positions.

The U.S. Dollar is down substantially across the board as an International Monetary Fund Report encouraged traders to lighten up their recent long positions. Since late last week the U.S. Dollar has been gaining ground versus most major currencies as investors remained skeptical that the global economy was on track for a recovery. Traders have been questioning whether the recovery would be able to sustain itself without the influence of central bank stimulus.

Yesterday’s weaker than expected U.S. consumer confidence report demonstrated that consumers are still the key to a recovery as this poor number ignited a rally in the Dollar and a break in U.S. equities. Overnight, the IMF’s Global Stability Report reassured investors that the global economy would grow faster than expected and erased some of the doubt left in the market following yesterday’s weak U.S. consumer confidence report.

The IMF report reduced estimated losses from the financial crisis by $600 billion to $3.4. In reporting this substantial reduction in its estimate, the IMF said, “systemic risks have been substantially reduced following unprecedented policy actions and nascent signs of improvements in the real economy.” The report went on to state that “there is growing confidence that the global economy has turned the corner, underpinning the improvements in financial markets.”

Demand for the Dollar weakened on the news as traders felt more confident to seek higher yields in more risky assets.

The EUR USD is rebounding 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. The move in the Euro is expected to retrace 50% of the recent decline from the top.

The GBP USD is continuing the rally from yesterday which was triggered by a favorable U.K. Retail Sales and second quarter GDP Report. The bullish IMF report is helping to extend the gains, which are still largely short-covering due to the recent sharp sell-off in the Pound.

The USD JPY is trading lower today despite a report yesterday 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 is expected to put pressure on the USD CAD. Overnight the Canadian Dollar is trading sharply higher on expectations of a rise in energy and equity prices today.

Demand for higher yielding assets because of the bullish IMF report is helping to 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.

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