Dollar Stalls after Hitting Three-Month High

The U.S. Dollar reached a three-month high today. The strong surge to the upside was fueled by the S&P’s downgrade of Greece’s credit rating

The U.S. Dollar reached a three-month high today. The strong surge to the upside was fueled by the S&P’s downgrade of Greece’s credit rating. This strong rally started last night but gained strength throughout the day on the possibility of more downgrades of Euro Zone sovereign debt. Investors treated the Dollar as a safe-haven investment on the fear that the spread of bad debt throughout the region could trigger serious banking issues, curtailing the current economic recovery.

The EUR USD took out a major 9-month uptrending Gann angle as well as a minor .618 level overnight and accelerated to the downside. Both fundamental and technical factors contributed to today’s weakness. Look for the downside momentum to continue unless the European Central Bank steps up to defuse the growing debt crisis by freeing up liquidity.

The GBP USD sold off today because of a disappointing retail sales report. This news overwhelmed Wednesday’s better than expected jobless claims data. Technically, the British Pound failed to hold retracement zone support and is now trading on the weak side of a 3-month 50% price at 1.6292. The chart indicates this market is vulnerable to a further decline to 1.5941.

Falling gold prices and the weakening stock market pressured the Canadian Dollar throughout the New York trading session. Technically, the USD CAD broke out to the upside on the move through 1.0691, but stopped short of taking out a daily swing top at 1.0748. If the breakout above this level catches buyers rather than stops, then look for a further rally to 1.0870.

Demand for higher yields, an improving economy and the reversal of the carry trade helped trigger a sharp rally in the USD JPY. It is possible that a sharp sell-off in the equity markets tomorrow could lead traders to the safety of the lower yielding Yen. This would trigger a profit-taking correction in this currency pair.

Demand for the U.S. Dollar and debt problems in the Euro Zone helped to underpin the USD CHF. Traders are factoring in the possibility that Swiss banks face exposure to debt issues in Greece, Portugal and Spain. Unless something is done to defuse the growing fear that a debt crisis is developing, the Swiss Franc could deteriorate further. In addition, a collapse in the gold market could put additional downside pressure on Swiss currency.

Lower stock prices and the possibility of higher interest rates in the U.S. pressured both the AUD USD and NZD USD. Speculators shied away from higher risk assets while seeking shelter. The Aussie is the weaker of the two. Wednesday’s report showing slower than expected 3rd Quarter growth triggered selling pressure as it sent a sign to traders that the Reserve Bank of Australia was likely to take a pause from hiking interest rates over the near-term. Technically, the Aussie turned the weekly main trend down on the trade through .8905. The chart indicates the first objective is .8780, followed by .8633. The NZD USD is trading weaker but the downside momentum could accelerate following a trade through .6952.