Dollar Traders Betting on Hawkish Comment from Fed

The U.S. Dollar traded higher all day as speculators increased bets that the Fed would issue a more hawkish monetary policy statement tomorrow

The U.S. Dollar traded higher all day as speculators increased bets that the Fed would issue a more hawkish monetary policy statement tomorrow. Last night the main trend turned up on the weekly chart leading to a firm opening this morning.

The EUR USD stopped just short of piercing 1.4500. Overnight, sellers hit the Euro hard following the release of the German ZEW Economic Expectation Index report. Better than expected U.S. economic data and concerns over Euro Zone bank exposure to Greece, Portugal and Spain debt helped accelerate the decline.

The GBP USD was under pressure all day but remained inside of a retracement zone at 1.6292 to 1.6154. Overnight news that U.K. November CPI increased to 1.9% was largely ignored by traders since the pre-report guess was for an increase of 1.8%. This currency is not likely to move until it breaks out of its short-term trading range.

Today’s better than expected U.S. Industrial Output report put downside pressure on the Japanese Yen as it sent a signal to traders that the Fed was coming closer to hiking its benchmark interest rate. Traders have become more confident that the Fed will hike rates sooner than expected while the Bank of Japan is expected to keep interest rates unchanged at 0.10% on December 17th. The increase in the spread between the two interest rates helped trigger a reversal in the carry-trade. Investors bought Dollars to payback loans while simultaneously borrowing Yen.

Weaker Gold and the stronger Dollar helped trigger an overnight rally in the USD CHF. The up move accelerated throughout the day following the release of the better than expected U.S. Industrial Output report. This currency is now at its highest level since October. Swiss traders are pricing in possible banking issues with Euro Zone banks.

The Canadian Dollar traded weaker on Tuesday but remained inside the two month range. Stronger gold helped this market turnaround after early downside pressure. Firmer crude oil could help limit losses.

The AUD USD was under pressure most of the day following the release of bearish comments in the Reserve Bank of Australia minutes. The RBA minutes showed that arguments for a third rate increase were “finely balanced”. This change in member attitude had the effect of “materially shifting the stance of policy to a less accommodative setting.” In other words, its time to take a pause in rate hikes. The odds of a rate hike in February dropped from 80 percent to 66 percent.

The NZD USD finished the session down but off its low. This market hasn’t been able to attract any buyers since the spike to the upside last week after the release of the hawkish statement by the Reserve Bank of New Zealand. It’s beginning to look like last week’s two day rally was enough for investors to adjust their dovish positions. The chart indicates plenty of room to the downside.

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