Sell-off in U.S. Equities Prompts Late Session Dollar Rally

The U.S. Dollar was generally weaker during the New York session following the release of a better than expected ISM Factory Report.

The U.S. Dollar was generally weaker during the New York session following the release of a better than expected ISM Factory Report. The report showed that manufacturing was increasing faster than expected. The factory index rose to 55.7% in October. This was up from 52.6% in September and above the pre-report estimate of 53%. The only dark spot in the report was the decline in new orders to 58.5%. It was still above 50 which indicates expansion, but it was down for the second consecutive month.

U.S. Pending Home Sales rose 6.1%. This number beat estimates as first time buyers rushed to beat the expiration of an $8000 federal tax credit. The Dollar weakened on this report.

Trading was light and thin throughout the day as the bigger players decided to stand aside ahead of a number of central bank meetings this week. Tomorrow the Reserve Bank of Australia holds its monthly meeting. This is followed by the U.S. Fed on November 4th. The European Central Bank and the Bank of England hold their monetary policy meetings on November 5th. Choppy, two-sided trading could be featured this week as traders lighten up and adjust positions ahead of the news.

Although the Dollar moved lower as demand for higher risk assets rose following the ISM report, equities broke during the mid-session, thereby helping the Dollar to rebound off its bottom.

The EUR USD opened higher and was able to hold on to its gains at the close. Traders are keeping this market in a tight range ahead of the ECB meeting on November 5th. This market has held inside of 1.4859 to 1.4684 for the past four days. A breakout to the upside targets 1.4873 to 1.4918. Weakness could develop under 1.4707.

The British Pound was under pressure the whole day as traders positioned themselves for the Bank of England meeting on November 5th. Traders seem to be betting that the BoE will leave interest rates alone but may announce an extension or an expansion of its asset purchasing program. Currently this market is rangebound between 1.6691 to 1.6250. The mid-point of this range at 1.6470 repelled the market today. The close under this price indicates weakness.

The USD JPY reversed early session weakness to finish higher for the day. This market turned around on the stronger U.S. ISM Factory Report. The short-term range is 87.99 to 92.32. Look for the market to go after the retracement zone of this range at 90.75 to 91.12. A stronger U.S. economy is bearish for the Japanese Yen.

The USD CHF remains rangebound as it tries to establish a support base for the next rally. The main range is 1.0032 to 1.0285 with a mid-point at 1.0158. Look for choppy two-sided trading on both sides of this price until this market can establish a direction. A breakout over 1.0285 will turn the main trend to up.

A stronger than expected Chinese ISM number helped boost the AUD USD overnight. The U.S. ISM number helped push it even higher during the day session. Traders believe that an increase in Chinese manufacturing will lead to a potential increase in Australian exports. Tomorrow the Reserve Bank of Australia holds its monetary policy meeting. Investors expect to see a 25 basis point rate hike. This has already been priced into the market so the focus will be on the policy statement. Bullish investors will want to hear that the RBA is considering another hike in December. The AUD USD has established a short-term range of .9329 to .8905. The 50% level of this range stopped today’s rally at .9117. Weaker equity markets late in the session also helped limit gains.

The NZD USD traded higher during the early part of the New York session but withered into the close. Downtrending Gann Angle resistance at .7315 held the market in check throughout the day. Further weakening of this currency pair could trigger a break to .7159 to .7047. Tomorrow’s Australian central bank meeting could have a spillover effect on the New Zealand Dollar.

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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