U.S. Dollar Finishes Week Slightly Better

The U.S. Dollar closed the week mixed on the daily chart, but higher on the weekly chart. Weak economic reports highlighted by a disappointing employment report helped boost demand for the lower yielding Dollar.

The U.S. Dollar closed the week mixed on the daily chart, but higher on the weekly chart. Weak economic reports highlighted by a disappointing employment report helped boost demand for the lower yielding Dollar.

The poor U.S. economic reports this week demonstrate the fact that the financial stimulus plans are not working and that the Fed or the Federal government is going to have to take a more aggressive approach toward stimulating the economy.

The U.S. Dollar Index closed up slightly for the week in a follow-through rally which confirmed last week’s closing price reversal bottom. This counter-trend move typically lasts 2 – 3 weeks and usually reaches a 50% retracement level. In this case, 77.98 is the first target.

The EUR USD posted a small gain on Friday after selling off following the release of the U.S. employment report. For the week, the Euro finished lower. The charts indicate the potential for a break to 1.4444 to 1.4350 over the short-run. Fundamentally, the economy is still weak but showing signs of strengthening. This condition prompted European Central Bank President Trichet to say that he does not favor ending central bank stimulus plans until the global economy shows stronger signs of recovery.

The USD CHF finished higher for the week as intervention by the Swiss National Bank pressured the Swiss Franc. The charts indicate that 1.0604 is the next upside target. The SNB is concerned about the value of the Swiss Franc relative to the Euro. In addition, it wants to do all it can to prevent deflation.

Profit-taking and short-covering after a lengthy sell-off helped boost the GBP USD this week although it still finished with a slight loss. In August the Bank of England voted to increase the funding for its stimulus program. The British Pound weakened on the news. Now that it appears the other central banks may have to take a similar measure, traders are adjusting positions for the possible changes. This is helping to boost the British Pound relative to other currencies.

Despite lower equity and energy prices, the USD CAD finished lower for the week in choppy two-sided trading. The best way to describe this currency pair is rangebound between 1.1124 and 1.0589. Until the market can break out of either side of this range, look for lower markets to follow. Weakening demand for higher risk commodities and stocks could help to boost the U.S. Dollar versus the Canadian.

The USD JPY is in a position to post a weekly closing price reversal bottom. Traders sold the Yen as it approached key resistance areas. The Bank of Japan is afraid of excessive volatility and may act to weaken the Yen if it deems the trading activity to be abnormal. If a reversal bottom is formed, look for a follow-through move to launch a rally to 93.00.

Despite lower demand for higher risk assets, the NZD USD finished only slightly lower for the week. The trading range was tight and the weekly chart finished by forming an inside trading week. This could be a sign that traders are indecisive about the New Zealand economy and the next move by the Reserve Bank of New Zealand. Downside pressure is likely to build if equity and commodity markets continue to weaken.

The AUD USD posted a new high for the year this week, but failed to close higher. Technically, this indicates the possibility of a major top formation. Currently the short term charts indicate the possibility of a break to .8507 to .8424. Losses may be limited by traders placing bets that the Reserve Bank of Australia will be the first central bank to raise interest rates. Given the current state of the global economy and the sluggish recovery taking place, the RBA may have to rate until the end of the year to hike rates

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