Easing Credit Woes Pressure Dollar

The U.S. Dollar finished lower today against a basket of trade weighted currencies. The Greenback was under pressure all day and never quite recovered following an overnight announcement that Dubai received $10 billion in financing from Abu Dhabi to pay part of the debt held by the state-owned Dubai World.

The U.S. Dollar finished lower today against a basket of trade weighted currencies. The Greenback was under pressure all day and never quite recovered following an overnight announcement that Dubai received $10 billion in financing from Abu Dhabi to pay part of the debt held by the state-owned Dubai World.

Global investor concerns were eased by this event because it helped to alleviate the need to use the Dollar as a safe haven investment. Last week, the Dollar rose partly after a credit ratings downgrade of Dubai owned entities along with downgrades of Greece, Portugal and Spain.

Trading was lackluster and slow ahead of this week’s Federal Reserve Open Market Committee meeting on December 10th. Investors seemed reluctant to take a big position ahead of this last meeting for the year. Since the FOMC’s last meeting in November, the U.S. unemployment rate has dropped to 10% and retail sales have risen above expectations. Job losses and consumer spending are two key input factors the Fed uses to determine its interest rate policy.

Traders are hoping the Fed looks at the improvement in these two factors and issues a more hawkish statement. A dovish statement will be a surprise which is not likely to bode well for the Dollar.

The EUR USD finished slightly higher after bouncing off a 50% price at 1.4594 Sunday night. 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 were muted, however, by the news that Euro Zone industrial production fell for the 18th month while employment extended its decline and uncertainty over the Fed’s next decision.

The GBP USD rebounded after trading lower overnight. The news out of Dubai did not helping the British Pound. The lack of follow-through to the downside after New York open most likely led to short-covering. 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.

The USD JPY was under pressure all day from traders reversing their long positions initiated last week. This currency pair closed on a 50% price at 88.57. The chart indicates the possibility of a further pull-back into the 50% support at 87.80.

The USD CHF finished slightly lower in light trading. Resistance was provided by last week’s high at 1.0367. Weakness was 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.

Firm crude oil and stronger equity markets helped to pressure the USD CAD late in the trading session. This market continues to drift inside of a tight and narrow range without much direction. Unless something major comes out that will ignite some movement, look for trading to continue on both sides of 1.0598 and 1.0537.

Demand for higher yielding assets helped boost the AUD USD and NZD USD after early weakness. The news out of Dubai helped to alleviate fears about holding higher risk assets.

The NZD USD was under pressure when New York opened but turned around about mid-morning. This could be a sign that traders are ready to resume the strong up move triggered by last week’s surprise hawkish statement by the Reserve Bank of New Zealand.

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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