Oversold Technical Conditions Boost U.S. Dollar Overnight

The U.S. Dollar is trading higher overnight based on oversold technical conditions. Yesterday’s comments from Fed Chairman Bernanke regarding the Dollar may also be triggering a short-covering rally as well a position-lightening.

The U.S. Dollar is trading higher overnight based on oversold technical conditions. Yesterday’s comments from Fed Chairman Bernanke regarding the Dollar may also be triggering a short-covering rally as well a position-lightening. The overnight action has not been sufficient enough to call for a change in trend.

Yesterday, Bernanke expressed concern for the Dollar, which was a surprise to some since the Fed Chairman rarely talks about the U.S. currency. In his speech, he said he remains committed to a strong Dollar like the Treasurer usually says, but he failed to come up with a strategy to boost the greenback. In addition, he talked about interest rates remaining “exceptionally low” for “an extended period”. It’s hard to believe that the long-term down trend will change for the Dollar given that interest rates are expected to remain low.

The short-term trend may reverse temporarily because traders usually get nervous whenever a central bank official talks about their currency. This usually leads to counter-trend trading as investors reel in profits and adjust positions to protect their exposure to any sudden changes. This appears to be what is going on overnight and could develop into the theme for the day.

Although he talked about the Dollar, Bernanke’s main concern is to protect his mandate to grow employment and protect price stability. It is likely that he will accept a lower Dollar as long as it doesn’t interfere with his plans. The problem is interest rates. If he raises rates too soon to protect the Dollar then he may derail the economic recovery.

The EUR USD is trading lower overnight. Each time this market has approached the $1.500 area there has been selling pressure. Traders seem to fear the wrath of the European Central Bank if the Euro rises too far, too fast. Early this morning, ECB President Trichet made a comment which in effect was an attempt to talk up the Dollar. Technically, the Euro could break back to 1.4837 to 1.4825.

The GBP USD is weaker this morning. Yesterday’s rally was triggered by positive comments from Bank of England member Andrew Sentance. This was a departure from last week’s comments from BoE Governor King who tried to talk down the British Pound. The charts indicate a possible pullback to 1.6706 to 1.6697.

Short-term oversold conditions and the fear that the Bank of Canada may enter the market to drive down the currency are helping to boost the USD CAD. The charts indicate support at 1.0435. The current rally could drive the market to 1.0643 to 1.0650.

The AUD USD is trading under pressure overnight following comments from the Reserve Bank of Australia regarding further interest rate hikes. The RBA said that possible rate hikes are “an open question”. Based on the short-term range of .8905 to .9405, traders should look for a retracement to at least .9155 to .9096.

The USD JPY is trading higher. The chart pattern suggests a possible closing price reversal formation. Look for a short-term rally to 90.45 to develop.

The NZD USD is piggy-backing the move in the Aussie Dollar. Watch for a correction back to .7302 to .7301 over the short-term. The current chart pattern suggests a possible 2 to 3 day break.

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: