Higher Gold; Stock Indices Drive Dollar Lower Overnight

Another surge to the upside in gold and renewed buying in Asian stock markets helped drive the Dollar lower overnight as investors once again increased demand for higher yielding assets.

Another surge to the upside in gold and renewed buying in Asian stock markets helped drive the Dollar lower overnight as investors once again increased demand for higher yielding assets.

The EUR USD is trading higher overnight ahead of this morning’s European Central Bank report. Most traders have decided that the ECB will leave interest rates unchanged at 1% so the focus will be on ECB President Trichet’s talk at 7:30 a.m. Central Time. Trichet is expected to outline the ECB’s plan to wind down the billions of Euros of financial stimulus it has provided to the financial system.

The GBP USD surged to the upside, making a new high for the week, but has since fallen back inside of the key retracement zone at 1.6646 to 1.6575. Economic reports overnight are signaling that the U.K. is showing signs of improvement but that the road to recovery is likely to remain rough. A break back under 1.6575 is likely to lead to additional selling pressure.

The USD JPY is trading higher for the third straight day since the Bank of Japan announced new stimulus measures. Since the BoJ doesn’t meet formally until December 17th, expectations are for this counter-trend move to continue until then. Traders are pricing in the possibility of an intervention although no formal announcement has been made. Technical traders should note that this market is likely to continue up until the next retracement area is met at 88.57 to 89.46. This gives this market plenty of room to the upside.

The USD CHF is trading lower because of the increase in demand for higher yielding assets; however, it remains range bound between .9918 and 1.0176. The fear of another intervention by the Swiss National Bank is helping to curtail the selling pressure.

The main range in the USD CAD is 1.0205 to 1.0870. This range is creating the retracement zone at 1.0459 to 1.0537 which has kept this market in balance for close to a month. Higher equity prices are helping to buoy the Canadian Dollar, but the lack of direction in the crude oil market is helping to limit gains. Traders are also fearful about pressuring the USD CAD too much out of fear of an intervention by the Bank of Canada.

Greater demand for higher yielding assets is helping to boost the AUD USD overnight. The chart pattern suggests that a breakout to the upside over .9322 is possible. Earlier this week, the Reserve Bank of Australia started this current rally when it increased its benchmark interest rate 25 basis points to 3.75%. Holding above .9230 should help to maintain the upside momentum. A failure to hold .9175 could trigger a sharp correction.

The NZD USD is up overnight as traders renewed demand for higher yielding currencies, but this pair is still having trouble with the retracement zone at .7272 to .7332. New support rises to .7182. Higher equity markets are needed today to give this market a boost, or it may begin a correction back to .7161.

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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