Higher Equities and Commodities Drag Dollar Lower

The U.S. Dollar is trading lower against all majors as overnight rallies in the stock indices and gold are once again pulling the Dollar lower and signaling renewed demand for higher risk assets.

The U.S. Dollar is trading lower against all majors as overnight rallies in the stock indices and gold are once again pulling the Dollar lower and signaling renewed demand for higher risk assets.

Even European Central Bank President Trichet couldn’t prolong the rally in the Dollar. Yesterday he expressed support with Fed Chairman Bernanke in supporting the Dollar. His comments triggered a short-covering rally which could not be sustained overnight. ECB member Jean-Claude Juncker said overnight that Trichet did what he had to do, but that the Euro wasn’t high enough to curtail the Euro-Zone recovery.

The EUR USD is trading higher and appears to have the momentum to drive past $1.5000 this time. Certainly, Juncker’s comments have taken out the fear of buying the Euro as it begins to break out above this price. Traders have been reluctant lately to buy when the market approached this figure out of fear the ECB would try to prevent the currency from advancing further. Last night’s comments give traders the green-light to begin the move which takes the Euro behind the annual high at $1.5063.

The Bank of England’s minutes show a three-way split in the vote to expand the asset-purchase program. This is helping to provide support for the GBP USD this morning. It also signals that the BoE is not likely to expand the program any further at its meeting next month. It looks at if technical factors may be limiting gains. Current conditions suggest that the recent rapid rise has put this market in an overbought position.

The USD JPY is trading sideways-to-lower. If U.S. interest rates are going to remain low in the U.S. then the Japanese Yen should appreciate against the Dollar. Traders seem to be hesitant to sell the USD JPY as it approaches the recent bottom at 87.99. Investors aren’t sure how the Bank of Japan will react if the Yen continues to strengthen.

Yesterday’s rally in the USD CHF appears to have been a short-covering rally. The move stopped at a key 50% price at 1.0186. This indicates that it was just a short-covering rally designed to relieve some of the downside pressure.

The AUD USD is recovering nicely following yesterday’s sell-off. The break was triggered by the Reserve Bank of Australia’s minutes which questioned whether the RBA was in a position to hike interest rates over the near-term. Since the market was not thinking they would, the break was mild compared to reactions in the past. Demand for higher yielding assets is the driving force today.

Demand for higher yielding assets is helping to support the NZD USD. This market however is still in a downtrend and a weak position. Even with gold and equity markets hitting new highs for the year, this currency hasn’t been able to keep pace with the demand for higher risk assets. It looks like it is going to take a surprise event to trigger another surge to the upside.

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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