U.S. Dollar to Open Mixed to Better

Following a quiet overnight trade, the U.S. Dollar is set to open mixed to better versus most major currencies. Yesterday the Dollar took a beating following a rate hike in Australia and talk that it was going to be replaced as the pricing vehicle for oil.

Following a quiet overnight trade, the U.S. Dollar is set to open mixed to better versus most major currencies. Yesterday the Dollar took a beating following a rate hike in Australia and talk that it was going to be replaced as the pricing vehicle for oil.

There is very little news to trade off today. Crude inventories will be reported during the morning. Consumer credit and the Treasury budget later in the afternoon.

The EUR USD is trading slightly lower. If demand shows up again for higher yielding assets, then look for the Euro to push higher. Tomorrow the European Central Bank holds its monthly meeting. Expectations are for the ECB to hold interest rates steady and to continue to it stimulus plans. ECB President Trichet has already expressed concerns about central banks concluding their stimulus plans too early. He wants to make sure there are strong signs of a recovery before ending the stimulus programs.

Look for a lower opening in the GBP USD. The fundamentals remain weak as reports still show the economy hitting soft spots. Yesterday it was reported that Factory Output was lower than expected. In addition, last month’s comments from Bank of England Governor Mervyn King favoring a lower currency are still weighing on the market. Losses are most likely being limited because of the overall weakness in the U.S. Dollar. On October 8th the Bank of England is expected to leave interest rates at 1% while maintaining its asset-buyback program.

The USD JPY continues to feel downside pressure. For the past week, this currency pair has been rangebound because of mixed comments from the Bank of Japan. A couple of weeks ago the Japanese Finance Minister said he was comfortable with the rise in the Yen if it was based on sound economic reasons. This was followed-up by comments that an intervention would be likely if prices became abnormal or trading too volatile. These comments confused traders who chose to take a wait and see attitude. Look for the Yen to gain steadily as traders still remain tentative about just what the BoJ means. Traders may continue to stick their toes in the water while supporting the Yen but remain cautious as the value of the Yen rises.

The technical picture in the USD CAD suggests a sideways, rangebound market. Traders are concerned that an overvalued Canadian Dollar will curtail demand for Canadian exports. On the other hand, rising crude oil and equity prices have been supportive for this currency pair. One side will eventually win over the other, but until then, expect more sideways action. Look for a steady to lower opening this morning.

The AUD USD and NZD USD are expected to open steady this morning. Yesterday’s rate hike by the Reserve Bank of Australia suggests that the economy is strong enough to withstand higher borrowing costs. Traders are now waiting to see when the RBA ends its stimulus plans. The Aussie could see continual support on expectations that the RBA will hike rates again in December. Firm equity markets are expected to continue to support both currencies as this will be a sign that demand is still strong for higher risk assets.

The Reserve Bank of New Zealand is on record saying it will not raise interest rates until early 2010. Yesterday’s action by the RBA may cause the New Zealand central bank to rethink its plans especially if the Aussie rises at a much faster pace than the Kiwi.

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

Disclainer: