U.S. Dollar Falls as Appetite for Risk Returns

The U.S. Dollar was down on Monday against a basket of currencies, driven by increased demand for higher risk assets.

The U.S. Dollar was down on Monday against a basket of currencies, driven by increased demand for higher risk assets. Today’s weakness in the Dollar was triggered by this week-end’s statement by the Group of Seven and a better than expected U.S. ISM Services Sector Report this morning.

The Group of Seven in a prepared statement, chose to leave out comments about the value of the Dollar and instead said it was opposed to “excess volatility and disorderly movements” in the Forex markets.

This morning the U.S. ISM Non-Manufacturing Sector Report was reported better than expected. The report showed the index rise to 50.9, which was higher than pre-report estimates of 50 and up from an August figure of 48.4.

Because of the friendly nature of each news event, investors felt confident about returning to the long side of higher risk, higher yield currencies.

The EUR USD posted a strong gain on a combination of demand for higher yielding assets and technically oversold conditions.

Fundamental factors continued to hurt the GBP USD, but appetite for higher yielding currencies helped to curtail losses.

The stronger ISM Report helped weaken the USD CAD on the thought that it would help boost the Canadian economy. Stronger demand for equities and commodities provided additional support.

The USD JPY traded mixed throughout the trading session but closed lower by the end of the day. Comments from the Bank of Japan regarding a possible intervention pressured the Japanese Yen early, but a BoJ official cleared up the matter by restating that the BoJ would only act against the Yen if speculation became excessive and price levels unrealistic.

Firm demand for higher yielding assets helped to drive up the NZD USD and AUD USD. Traders were also betting heavily that the Reserve Bank of Australia would be the first major central bank to hike its benchmark interest rate. Investors are speculating that the RBA will raise interest rates by 0.25% at its meeting tomorrow.

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