Dollar Hits Three-Month High Versus Japanese Yen

The USD JPY surged to the upside overnight, taking out the late October high at 92.32, on its way to a three-month high

The USD JPY surged to the upside overnight, taking out the late October high at 92.32, on its way to a three-month high. Concern over a potential bankruptcy filing by Japan Airlines is putting pressure on the Yen. Stories are also circulating that Japan’s AA rating is in danger of being cut if the country does not shore up its debt situation. Finally, traders are also factoring in potential action by the Fed in 2010 that will lead to higher interest rates and a stronger Dollar.

A contraction in Euro Zone money supply is pressuring the EUR USD. This news was unexpected but could cause issues in the short-run as it could lead to a credit crunch. This is important to note because of credit problems in Greece, Spain and Portugal. So far the European Central Bank has not offered any aid to these regions. Tightening credit conditions could mean that the ECB may not be in a position to offer relief to these troubled regions if problems accelerate.

The GBP USD is under pressure this morning following yesterday’s reversal to the downside. Momentum is building which could keep pressure on this currency all day. Traders seem content with driving this market to the mid-October bottom at 1.5706. Investors are worried that the economy will remain weak over the near-term while the U.K. wrestles with a huge debt burden.

The USD CHF confirmed yesterday’s closing price reversal bottom at 1.0278 when it took out 1.0384. The chart pattern suggests the next upside objective is 1.0392 to 1.0419. Traders are reacting to potential higher interest rates in the U.S. and the improving economy.

Weakening equity markets and lower gold is helping to support the USD CAD. Yesterday this currency pair formed a closing price reversal bottom which was confirmed overnight. The current chart pattern suggests a rally to 1.0555 to a.1.0600 is likely over the short-run.

Falling global equity markets are pressuring the AUD USD. End-of-the-year profit-taking is triggering a sell-off in the stock indices which is leading to reduced demand for higher yielding assets. Yesterday the Aussie stopped near a key 50% price at .8964. This price remains resistance today along with the .618 retracement price at .9018. The short-term picture indicates a break to .8863 is likely.

The NZD USD is trading slightly weaker. This currency pair is trading inside a retracement zone at .7144 to .7185. A break under .7144 will indicate the start of a correction to .7091. Weakening demand for higher yielding assets is the catalyst behind this morning’s weakness.