Dubai Financing News Rocks U.S. Dollar

The U.S. Dollar is backing off a two-month high versus a trade-weighted basket of currencies on the news that Dubai received $10 billion in financing from Abu Dhabi to pay part of the debt held by state-owned Dubai World.

The U.S. Dollar is backing off a two-month high versus a trade-weighted basket of currencies on the news that Dubai received $10 billion in financing from Abu Dhabi to pay part of the debt held by state-owned Dubai World. This event is helping to alleviate one of the concerns which drove traders into the Dollar last week, the others being downgrades in Greece, Portugal and Spain. The overnight selling pressure is a sign that traders may be less risk averse and looking at taking on more risk today in the higher yielding currencies.

The main concern for investors this week is the Federal Reserve Open Market Committee meeting on December 16th. Since its last meeting in November, the U.S. unemployment rate has dropped to 10% and retail sales have risen above expectations. Job losses and the lack of consumer spending are two key determinants studied by the Fed. Traders are looking for the Fed to look at these two reports and perhaps issue a more hawkish statement. A dovish statement will be a surprise which is not likely to bode well for the Dollar.

The EUR USD is up slightly after bouncing off a 50% price at 1.4594. The initial thrust in this market overnight was provided by the surprise news out of Abu Dhabi regarding its partial bailout of Dubai World. Gains have been muted, however, by the news that Euro Zone industrial production fell for the 18th month while employment extended its decline.

The news out of Dubai is not helping the GBP USD. British Pound traders have enough on their tables than to worry about sovereign debt issues in the Middle East. The U.K. has budget and debt issues of its own. Last week, traders had to deal with the threat of a credit rating downgrade. While this fear has been alleviated, concerns this week will be about inflation growth and jobless claims. Technically, this currency pair is trying to build a support base inside of a retracement zone at 1.6292 to 1.6154.

The USD JPY is under pressure as traders reverse positions initiated last week because of debt concerns in Dubai. The chart indicates the possibility of a pull-back of this currency pair into 50%/Gann angle support at 87.80 to 87.58.

The USD CHF is trading slightly lower overnight. Resistance is being provided by last week’s high at 1.0367. Weakness is being indicated by this pair’s failure to hold the old main top at 1.0337. This is usually a sign that conditions are overbought and that the last drive higher was most likely stop driven rather than fresh buying.

Weaker Gold and crude oil prices could be weighing on the Canadian Dollar overnight. Technical factors could also be contributing to the strength in the USD CAD. The inability to break the U.S. Dollar last week coupled with a potentially bullish chart formation is helping to support prices. Support is at 1.0598. Resistance drops in at 1.0691.

The AUD USD is under pressure this morning despite a strong rally in U.S. equity markets overnight. Trader concerns over this week’s 3rd Quarter GDP Report and the Reserve Bank of Australia’s minutes could be causing investors to stand aside overnight.
Technical factors could be contributing to the weakness also. Last week, the Aussie rallied, only to find resistance at a 50% level at .9167. The current chart formation suggests the start of a secondary lower top formation and the possibility of a confirmation of the down trend on a move through .9014.

The New Zealand Dollar hasn’t been able to maintain the strong momentum triggered by last week’s hawkish central bank statement. Although that news was fundamentally bullish, this market may have reached an overbought level when it neared a 50% price level at .7328. The current chart formation suggests the NZD USD is poised for a pull-back to .7180 to .7148.

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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