Dollar Tumbles on China Import/Export News

The U.S. Dollar is trading sharply lower as China reported a 17.7% increase in exports and a 55.9% increase in imports.

The U.S. Dollar is trading sharply lower as China reported a 17.7% increase in exports and a 55.9% increase in imports. The surge in exports was the first rise in 14 months. Pre-report guesses were for only a 4% increase. Due to the timing of the report, and its extreme bullishness, the Australian and New Zealand Dollars both had rare gap openings Sunday night.

Dollar bulls are still reeling from the soft U.S. Non-Farm Payrolls report on Friday. Traders had been looking for the report to show that job losses had remained flat or perhaps that new jobs had been created during December. Instead the government reported that 85,000 new jobs were lost.

Adding more fuel to the bearishness were comments from St. Louis Fed President James Bullard who signaled that interest rates weren’t going to move higher over the near-term. Bullard said, “interest rates may remain low for quite some time”. He also added that the Fed’s zero interest rate policy is “on hold”. He couldn’t have made his position any clearer. In addition to talking about the future direction of interest rates, Bullard said the Fed faces a challenge when adjusting its asset-purchase program because of the possibility of inflation.

With the light economic calendar today, traders will have a chance to digest Friday’s Non-Farm Payrolls report and its impact on the economy. So far the bets have been placed on a weaker Dollar and renewed interest in higher yielding assets as evidenced by the surge in equity and commodity prices. Traders should note that the soft employment report has not changed the outlook for a recovery, but it has pushed back the Fed’s timetable for increasing interest rates.

Later during the trading session, Atlanta Federal Reserve President Dennis Lockhart speaks to the Rotary Club of Atlanta. Look for him to reiterate what Bullard already said last night. His comments are expected to be dovish.

The cash U.S. Dollar Index is in a downtrend. Expectations are for the weakness to continue until this index reaches a major 50% price level at 76.31.

The EUR USD is trading higher as investors reduce bets that the Fed will raise rates after last week’s weaker-than-expected U.S. jobs report. Technically, the Euro broke through Gann angle resistance at 1.4524. It also broke out to the upside after forming a support base. The first upside target is 1.4680, followed by 1.4790.

The GBP USD broke away from a retracement zone at 1.6036 to 1.5988. A new higher bottom was also formed at 1.5895. The main trend will turn up on a trade through 1.6240. The first upside target is 1.6355, followed by 1.6478.

The USD JPY is trading weaker after confirming last Friday’s closing price reversal top on the overnight move through 92.28. At this time a Gann angle at 92.08 is holding as support. Look for an acceleration to the downside if this angle is broken. The chart indicates there is room to the downside with 89.30 to 88.24 the next downside target.

The USD CHF broke an uptrending Gann angle at 1.0218 and a 50% price at 1.0212. This move helped to accelerate the break to the .618 retracement level at 1.0143. The next downside target is a slower moving Gann angle at 1.0068. Losses could be limited because of the threat of an intervention by the Swiss National Bank. Although this action will be meant to curtail the Swiss Franc’s rise versus the Euro, it should also have a positive effect on the U.S. Dollar. Overnight, Swiss central bank President Hildebrand said intervention was possible to prevent “any excessive appreciation”. He also added that the SNB will “monitor exchange market developments very closely.”

Surges in natural gas, crude oil and gold have put the Canadian Dollar in a strong position. Overnight the USD CAD exceeded the October 20, 2009 bottom at 1.0265. This sets up a further decline to the October 15th bottom at 1.0205. Gann angle resistance is at 1.0445.

The surge in China’s exports helped trigger a gap higher opening in the AUD USD while triggering talk of a move to parity with the U.S. Dollar. Gann angle support is at .9174 today. Look for higher markets as long as this angle holds as support.

The NZD USD also gapped higher on the good news from China. Some traders feel that the jump in China demand could support the whole Pacific region. Look for an acceleration to the upside if the New Zealand Dollar can regain an uptrending Gann angle at .7410.