Traders Looking at Weaker U.S. Dollar on Opening

Overnight trading conditions suggest a lower opening for the U.S. Dollar. Trading activity is light as traders await more U.S. earnings reports today.

Overnight trading conditions suggest a lower opening for the U.S. Dollar. Trading activity is light as traders await more U.S. earnings reports today. Apple, Inc., McDonald’s Corp. and Whirlpool are among the major companies to report. The weaker Dollar suggests that investors must be expecting good earnings. Better than expected earnings results have tended to put pressure on the Dollar as investors increase their demand for higher risk assets. Apple will report after the closing bell so trading may be less volatile than usual throughout the day.

Expectations of better earnings are helping to boost the EUR USD overnight. Recently Euro Zone economic reports have signaled a flat to weaker economy, but investors have chosen to ignore these “old” reports and instead have decided to focus on the improving global economy. The weaker data is expected to convince the European Central Bank to keep rates unchanged at its next meeting in November.

Last week, a shift in sentiment helped drive the GBP USD sharply higher. This blow-out move formed a bullish closing price reversal bottom. The upside momentum was triggered by comments from a Bank of England official who said that the asset-buyback program was working as expected. This led to speculation that the BoE would consider ending the program sooner-than-expected.

This morning, the GBP USD is expected to open weaker on speculation that the BoE may actually be considering extending its asset purchases. This is making last week’s bulls a little nervous, causing them to pare positions in reaction to the news. Technically, the rally may be a case of too much, too fast. This means the strong possibility of a 50% correction of the rally. Traders will also be focusing this week on the release of the Bank of England minutes and the Third Quarter GDP.

The USD JPY is under pressure this morning after rallying most of last week. Low interest rates in the U.S. continue to encourage traders to treat the U.S. Dollar as a carry market. Last week’s rise in the Dollar versus the Yen was triggered in part by a clarification of a prior statement by Finance Minister Fujii. Earlier in the month he said that a strong Yen is good for the economy. Late last week he retracted the statement but reemphasized that he wanted a currency rise to reflect an improving economy.

The USD CAD had a strong comeback late in the week, but is under slight pressure this morning. Last week, traders initially sold the Canadian Dollar as it approached parity with the U.S. Dollar. One of the reasons for the selling was the possibility of an intervention by the Bank of Canada. Another reason for the sell-off could have been the anticipation of the weaker than expected Canadian consumer inflation figure that was reported on Friday.

Trading could be light today ahead of tomorrow’s Bank of Canada meeting. Investors expect the BoC to leave interest rates unchanged. The focus will be on whether they change the date when they expect to begin hiking rates in 2010. It may also issue a statement outlining its concerns about the rapid rise in the Canadian Dollar and its possible negative effects on the pace of the economic recovery.

The AUD USD is trading higher this morning. Rising equity markets overnight helped drive up demand for higher yielding assets. The resumption of the uptrend in the Aussie after Friday’s reversal down suggests that traders may be speculating that the Reserve Bank of Australia may hike interest rates 50 basis points instead of 25.

Next week the Reserve Bank of New Zealand will hold its monthly meeting. Aggressive traders are speculating that the RBNZ will raise rates by 25 basis points. Most traders, however, believe the RBNZ will keep its word and leave interest rates unchanged until the middle of 2010. Economic growth will dictate whether they change rates sooner rather than expected.

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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