Bank of Canada Announcement Sends USD CAD Soaring

This morning the Bank of Canada announced that interest rates would remain at 0.25 percent until June 2010 and that it was still concerned about the strength of the currency and its possible negative affect on exports.

This morning the Bank of Canada announced that interest rates would remain at 0.25 percent until June 2010 and that it was still concerned about the strength of the currency and its possible negative affect on exports. This news helped send an already strong USD CAD sharply higher. Technically, the U.S. Dollar crossed over to the bull side of the 1.0991 to 1.0205 range when it crossed the mid-point at 1.0588.

The EUR USD is continuing to weaken after breaking the last main bottom at 1.4801 yesterday. This currency pair is currently in a freefall with 1.4625 the next downside target. This morning’s sell-off was triggered by the news that Moody’s cut the credit ratings on six Dubai state-linked companies. In making the decision, Moody’s is of the opinion that it cannot assume the government will back the debt of these companies.

Currency traders concerned about risk are buying the lower yielding Yen, driving the USD JPY sharply lower. This rally is occurring despite the approval by the Japanese government of a new $81 billion stimulus package. Traders are not reacting to this news because it was announced last week and was already priced in. Currently, the USD JPY is trading on the bull side of 50% of the 92.32 to 84.83 range at 88.57. A break through this level indicates a move to 87.80 is next.

The British Pound accelerated to the downside this morning on concerns that credit problems in Dubai would spread to U.K. banks. Earlier this morning a report showing that U.K. house prices rose for the firth consecutive month was not enough to ignite buying interest in the GBP USD. Industrial Production was unchanged in October, reminding investors that the economy was still in a weakened state. Manufacturing output was also flat. Further complicating the possibility of a recovery is the threat by the U.K. government to raise taxes and trim spending.

Technically, the GBP USD is trading on the mid-point of the 1.5706 to 1.6878 range at 1.6292. This morning, the Pound took out two bottoms at 1.6271 and 1.6261 but failed to run stops, triggering an intraday short-covering rally. The market is still holding the October main bottom at 1.6250. A break through this level will send the market to 1.6154.

The USD CHF picked up strength all morning as it regained an old main top at 1.0222. Upside momentum could drive this market to 1.0337. Swiss Franc traders are also being influenced by the movement in the gold market. Weakening gold is pressuring the Swiss Franc. Gains in the USD CHF could be limited by a short-covering rally in gold later this afternoon. On December 10th the Swiss National Bank is expected to leave its benchmark interest rate unchanged and offer clarity as to its future monetary policy plans. Most traders expect the SNB to discuss its concerns about deflation and the possibility of another round of intervention if the Swiss Franc appreciates too much against the Euro.

Downside momentum appears to be building in the AUD USD. At this time, the market is in a weak position, below a pair of retracement zone. This market is trading weaker because of a drop in demand for higher yielding assets. A break in the stock market will act as a catalyst to drive this market lower.

The weekly swing chart indicates that the trend is down for the NZD USD. A new lower top has been formed at .7523. Like the Aussie Dollar, this market needs a catalyst to drive it lower. The charts indicate plenty of room to the downside with .6560 a potential target by the week-ending December 25th. Expect the Reserve Bank of New Zealand to leave interest rates at 2.5% until at least the Third Quarter 2010 when it makes its monetary policy statement tomorrow. Unemployment and a drop in exports should help to curtail gains in the economy.

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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