U.S. Dollar Falls as Traders Downplay Dubai Concerns

The U.S. Dollar is declining overnight as speculators are downplaying the debt problems in Dubai.

The U.S. Dollar is declining overnight as speculators are downplaying the debt problems in Dubai. Over the week-end, the United Arab Emirates central bank said it “stands behind” the country’s lenders. This helped to ease concerns that the state owned Dubai World will default on its debt. Traders now believe that this is a local economic problem rather than one with global ramifications. With these assurances in place, speculators are increasing their demand for higher yielding currencies.

Despite these assurances by the central bank, traders should continue to watch how the Dubai debt situation unfolds. The debt problem has exposed the fragility of the world financial markets. Although there may be a short-term pick-up in global demand for risk, upside momentum in foreign currencies may slow if investors decide to be a little more defensive in their speculative plays. Traders may decide to adopt a “trade not to lose” mentality which could create volatile trading conditions as investors will be quick to take profits following any appreciation.

Over the week-end, Chinese Premier Wen Jiabao rejected calls for a stronger Yuan. European Central Bank members had traveled to China hoping to convince Chinese officials to allow its currency to rise. Their premise was that China is distorting trade and limiting its own monetary policy options by keeping the Yuan tied to the weakening U.S. Dollar. Wen said that keeping the Yuan stable is best for China’s economy. He also implied that a stable Yuan would be beneficial for the global recovery. European officials feel that China’s currency policy is hurting exports because it drives the Euro higher and that this policy is actually detrimental to the Euro Zone’s economic recovery.

Dollar Index futures are trading lower overnight, but holding above last week’s low at 74.27. The late session rally from the overnight low at 74.54 indicates that traders are tentative about pressing this market further.

A rise in consumer prices is helping to boost the EUR USD overnight as well as a return of demand for higher yielding assets. The main trend is up with a new main bottom at 1.4801. A trade through this price turns the main trend down. 1.5144 is a new minor top.

The GBP USD is trading sideways overnight. Pressure is coming from the thought that the U.K. economy will continue to weaken over the short-term. A recent GDP report shows that despite additional stimulus, the economy is not as robust as previously forecast. Technically, the main range is 1.5706 to 1.6878. The 50% price at 1.6292 held last week after a sharp sell-off. Additional support is coming from a pair of main bottoms at 1.6261 and 1.6250.

The USD JPY hit a 15-year low last week at 84.83. The current short-term retracement is normal because of oversold conditions. Continue to look for sideways to lower trading unless this market regains the old bottom at 87.99. Speculators are also a little confused as to whether the Japanese government will intervene. It is well-known that they are concerned about the detrimental effect a rise in the Yen has on exports, but traders aren’t sure if the BoJ will intervene to pressure the Yen. Japanese Finance Minister Fujii said over the week-end that the government won’t act to curb the Yen’s gains, but later denied the comment. No one is sure what the government has in mind. This could produce volatile trading conditions.

The recent Commodity Futures Trading Commission Commitment of Traders Report shows that speculators are looking for the Swiss Franc to rise. This new strategy could be based on the thought that the Swiss economy will outperform the other European nations. The USD CHF is under pressure with the trend not likely to turn back up unless 1.0222 is violated. Last week’s intervention by the Swiss National Bank helped trigger a bottom at .9918 and a closing price reversal up. If this action is going to weaken the Swiss Franc then 1.0047 to 1.0017 must hold as support today.

The USD CAD is in an uptrend, but short-term range bound. Resistance is at 1.0730. Support has formed at two main bottoms at 1.0449 and 1.0416. Canadian Dollar traders are waiting for signs from the equity and crude oil markets that demand for risk is returning. If these two markets continue to weaken, then look for the USD CAD to advance to the upside.

Renewed demand for higher risk assets is giving the AUD USD a boost this morning. This is most likely short-covering as the recent decoupling of this currency from the stock market indicates lower prices to follow. Based on the range created by the July bottom at .7702 to the November top at .9405, traders should look for a possible break to .8553 to .8352 before major buyers step up to stop the break. The main trend is now down and the current lower-top, lower-bottom formation indicates that selling pressure is beginning to build.

The main trend is down in the NZD USD. The charts indicate that .6914 to .6744 is the next potential downside target. Diminishing demand for higher risk assets could pressure this market until the end of the year.

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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