Brighter Outlook for Economy Supports U.S. Dollar

The U.S. Dollar rallied following the release of a better than expected existing home sales report and never relinquished its gains.

The U.S. Dollar rallied following the release of a better than expected existing home sales report and never relinquished its gains. The rise in the Dollar following the release of good economic news is another sign that investors are returning to watching traditional fundamentals for direction. Gains are being limited this week because of thin holiday trading. Longs should watch out for pre-holiday profit-taking tomorrow and Thursday.

The Dollar received a boost overnight following another downgrade of Greece’s debt, but gave back those gains when the U.S. released a lower than estimated final third quarter GDP report. The good news from the housing sector underpinned the Dollar the rest of the day and the index closed a little off its high.

The Euro finished lower. The combination of a downgrade of Greece’s debt by Moody’s and the better than expected U.S. housing report helped to apply the downside pressure.

The GBP USD added to its overnight weakness throughout the day after the U.S. released the friendly existing home sales report to finish lower for the day. Overnight U.K. GDP was revised upward to show a loss of 0.2%. The previous estimate was for a loss of 0.3%. Pre-report estimates were for a loss of 0.1%. Pressure is expected to continue until the U.K. economy starts to show growth like its European counterparts.

Rising Treasury yields continued to boost the USD JPY. Optimism over an economic recovery in the U.S. is leading traders to sell the Japanese Yen. The recent rise in Treasury Bond and Note yields have become attractive to Japanese investors who have to sell the Yen to buy Dollars. Upside momentum is signaling a possible test of the October top at 92.32 over the near-term.

The Dollar closed firm against the Swiss Franc. Not only are traders looking for the U.S. economy to recover faster than the Swiss economy, but some investors are factoring in the possibility that Euro Zone sovereign debt issues may spillover to the Swiss financial system. A mid-session bounce in gold helped limit gains in the USD CHF.

The strengthening U.S. economy is having a positive effect on the Canadian Dollar. Although the USD CAD has faltered the past three days, this currency pair remains inside of its October to November range. The mid-point of this range is 1.0598. This price is an important pivot. Additional pivot price support comes in at 1.0537. Look for the USD CAD to remain inside its trading range until either economy takes the lead.

The shift in risk sentiment continued to pressure the AUD USD and NZD USD. Throughout most of this year, a rise in U.S. equity markets would have led to demand for higher yielding assets like the Aussie and Kiwi, but investors are now selling these currencies while returning to traditional fundamental analysis.

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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