Dollar Mixed Overnight on Light Volume

The U.S. Dollar is trading mixed overnight.The Greenback is losing ground against mostmajors while posting a modest gain versus the Japanese Yen. Although theovernight activity suggests a renewal of interest in higher yielding assets,traders are continuing to keep an eye on the developing global debt situation.

The U.S. Dollar is trading mixed overnight. The Greenback is losing ground against most majors while posting a modest gain versus the Japanese Yen. Although the overnight activity suggests a renewal of interest in higher yielding assets, traders are continuing to keep an eye on the developing global debt situation.

Stronger global equity markets are contributing to the weakness in the Dollar as traders are once again increasing demand for more risky assets after reassessing U.S. economic data and the odds of an interest rate increase by the Federal Reserve.

This morning, traders will get their first look at the U.S. employment situation following last week’s surprise drop in the unemployment rate. This report has a chance to set the tone for the day.

The NZD USD is posting strong gains overnight fueled by the prospect of higher interest rates earlier than previously reported. In adapting a more hawkish tone since the last meeting in November, the Reserve Bank of New Zealand said that if the economy continued to improve, conditions may support the removal of monetary stimulus “around the middle of 2010. This last line was more bullish than the previous announcement which said rates would not be hiked “until the second half of 2010”.

An additional boost was given to the currency when RBNZ Governor Bollard hinted that he was less worried about the strength in the currency. “We’re now seeing an economy where some of the background conditions are slightly stronger,” said Bollard. “We have been unusually explicit over the last number of statements because we thought we were seeing financial market conditions getting ahead of things.”

The surprise hawkishness by the RBNZ, caught traders off-guard while triggering a strong move overnight. Yesterday’s closing price reversal bottom seems to indicate that today’s change in stance was anticipated. The reversal bottom at .7043 was confirmed overnight on the rally through .7206. The current chart pattern suggests that the main trend on the daily chart will turn up on a move through .7299. Gains could be limited when this market reaches the retracement zone at .7328 to .7401. Downtrending Gann angle resistance at .7275 is providing additional resistance.

The AUD USD is posting a strong gain following the release of a better than expected employment report. Overnight the Australian government reported that the unemployment rate fell to a seasonally-adjusted 5.7%. The release of this data helped revive confidence in the global economy. Based on the short-term range of .9321 to .9014, traders should look for a retracement rally to .9167 to .9204.

The USD CHF is trading sideways-to-lower overnight following the Swiss National Bank monetary policy decision. The SNB left its 3-month target rate unchanged while announcing plans to stop bond purchases. It also added that it will continue to “act decisively” to counter strong gains in the Swiss Franc. At this time, the SNB feels that an interest rate hike is inappropriate because the recovery remains fragile and inflation forecasts uncertain.

Technically, the USD CHF posted a closing price reversal top. Overnight action failed to confirm the top and the higher-high negated the pattern. 1.0337 remains the next upside target. Mounting downside pressure could drive this currency pair to 1.0109 to 1.0064 over the short-run.

Stronger equity markets and a bearish economic report are helping to pressure the Japanese Yen. The drop in core machinery orders in October is fueling speculation that deflation will undermine the economic recovery. Technically, the USD JPY completed a 50% correction to 87.80. Finishing this retracement is helping to contribute to today’s weakness.

Stronger demand for higher yielding assets and an increase in German wholesale prices are helping to support the EUR USD. Yesterday this market posted a daily closing price reversal bottom at 1.4668. This chart pattern will be confirmed if the market crosses 1.4781. A confirmation could drive this market to 1.4906 to 1.4962 over the short-run. If downside pressure persists, then look for a test of 1.4625.

The GBP USD is trading higher as traders await the release of the Bank of England monetary policy statement. Traders expect interest rates to remain unchanged along with the BoE’s quantitative easing plan. News that the U.K. and France have banded together to tax banker bonuses may be helping to give the market a boost. Technically oversold conditions are also contributing to the bounce to the upside. Exposure to foreign debt and a monstrous budget deficit could help to limit gains.

At this time the British Pound is trying to establish support inside of a retracement zone at 1.6292 to 1.6154. If a support base can be built in this zone, then look for a rally back to 1.6443 to 1.6508.

The USD CAD is down but remains rangebound between a pair of 50% levels at 1.0598 to 1.0537. A stronger stock market and firm crude oil prices may be contributing to the overnight gains.