Dollar to Rally as Investors Become More Risk Averse

Aversion to risk is helping to put pressure on the EUR USD. A key 50% price at 1.4762 however, has slowed down the rate of the decline. If this area fails to hold, then look for a further decline to 1.4696.

Aversion to risk is helping to put pressure on the EUR USD. A key 50% price at 1.4762 however, has slowed down the rate of the decline. If this area fails to hold, then look for a further decline to 1.4696. Traders are starting to realize that we may be nearing the end of the “easy money” cycle and a shift in sentiment may be taking place. This will mean an end to central bank liquidity and demand for higher risk assets.

The USD CAD broke out over a key .618 retracement area overnight and now appears to be headed toward downtrending resistance at 1.0771. There may be a technical bounce at this level. If upside momentum can overcome this resistance then look for the rally to continue to 1.0881.

The USD CHF is trading flat this morning but this action should not affect the trend. Short-term traders may be backing off because of the strong rally earlier in the week, but longer-term traders are looking for more upside. This may mean a developing “buy the dip” situation. Sentiment appears to be shifting toward the Dollar and away from higher yielding assets.

Look for pressure on GBP USD this morning. Not only does this currency have to deal with the possibility of another expansion of the Bank of England’s asset buyback program, but now aversion to risky assets is putting additional pressure on it.

The USD JPY is trading weaker this morning as investors are starting to believe that the rally in higher risk assets may not be sustainable. Speculators are beginning to shift their bets toward a higher Yen on the notion that central banks from around the world are preparing to withdraw economic-stimulus funds.

The AUD USD is trading sharply lower as Australian inflation data came out a little below expectations. Traders took the Aussie down after a 50 basis point rate hike was eliminated from the possibilities at the November 3 monetary policy meeting. Traders are now banking on a 25 basis point hike and adjusting their positions to reflect this change in thinking.

The drop in the Aussie has led to a sympathy break in the NZD USD. Traders are pricing in the strong possibility that the Reserve Bank of Australia will leave interest rates unchanged at its next meeting.

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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