Pressure from APEC Continues to Mount Against U.S. Dollar

The U.S. Dollar continues to feel downside pressure from APEC comments at the mid-session.

The U.S. Dollar continues to feel downside pressure from APEC comments at the mid-session. Earlier the group of Asian-Pacific nations pledged to maintain stimulus until there’s signs of “durable growth”. This served as a sign that liquidity in the global markets will continue until strong economic trends can develop. Excess liquidity reduces the Dollar’s allure as a safe haven currency and increased demand for higher yielding assets.

APEC leaders also challenged President Obama who is facing a credibility crisis. APEC wants to know if he is committed to free trade since recent actions by the U.S. regarding Chinese imports seemed to be indicating otherwise. The APEC nations also endorsed China’s stance in fighting protectionism and declined to back U.S. calls for a stronger Yuan. Some analysts are calling this trip a failure for Obama. Others are saying it is bad timing for the U.S. to go after China’s economic policies at this time.

The global recession revealed the need for the global economy to rebalance. China has been trying to build an economy which relies less on the U.S. consumer. Obama said last week that the U.S. should “save more and spend less”. While China has been trying to do its part, it is calling for the U.S. to do the same. China resents the increases in U.S. tariffs and deems them as a sign of developing protectionism. They view Obama’s requests as one-sided. The U.S. is going to have to try a different approach or risk losing China as the major purchaser of Treasury debt.

The Obama administration has been attacking China’s economic policies since Geithner was appointed Treasurer. This week-ends stand by China and APEC may be indications that the U.S. should reconsider its approach.

The EUR USD is trading higher at the mid-session. Late last week it was reported that the Euro Zone economy is showing signs of growth. This is helping to give the Euro a boost as it brings the European Central Bank closer to removing stimulus and raising interest rates. The real challenge to this market will be the reaction by traders when the high for the year at 1.5063 is tested. Trend traders will most likely add to positions on a breakout over this level. Counter-trend traders will be looking to sell into this resistance in an effort to force the start of a double-top formation.

The “X” factor will be whether the ECB comes out with a challenge of its own when the price of the Euro reaches this level. Will they issue a stern warning which scares out the longs or will they allow the EUR USD to move higher in an orderly fashion. The ECB may be concerned that a high priced currency will curtail demand for Euro Zone goods, but they can’t stop the progress if the Euro Zone economy continues to improve and the currency moves higher with low volatility and for sound economic reasons.

The bulls have once again taken control of the GBP USD despite attempts by the Bank of England to talk the currency lower. Today’s strong move puts the market in a position to challenge the recent top at 1.6843. A new swing bottom has been formed at 1.6515.

A sign that the Japanese economy is turning around is helping to pressure the USD JPY. Overnight it was reported that Japan’s economy expanded in the third quarter at the fastest rate in more than two years. The actual results also blew away the guesses.

Higher equity and commodity prices are providing support for the higher yielding AUD USD, NZD USD and USD CAD. The Aussie Dollar is moving steady which means investors are seeking higher yields rather than speculating on another interest rate hike. The Canadian Dollar is stronger, but traders seem tentative to drive this currency higher until economic numbers can back the gains. Traders are still worried the Bank of Canada may take action to prevent its currency from rallying as it approaches par with the U.S. 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

Disclainer: