Chart Pattern Suggest Further Weakness in Dollar

The U.S. Dollar finished lower against a basket of currencies for the fifth straight day in sluggish trading.

The U.S. Dollar finished lower against a basket of currencies for the fifth straight day in sluggish trading. Contributing to the weakness were reports that U.S. Jobless Claims rose last week by the largest amount in five weeks and U.S. Retail Sales were down.

Both reports show that employment is still a major issue affecting the economy as well as consumer spending. Traders pressed the Dollar most of the day and wouldn’t allow it to get away by too much on the upside. Today’s economic data suggests the Fed will keep interest rates lower for a prolonged period of time which is once again driving up demand for higher yielding assets.

The European Central Bank left interest rates at 1% as expected. The EUR USD weakened a bit after ECB President Trichet failed to spark interest in the upside following his assessment of economic conditions in the Euro Zone region. The trading range was tight most of the day following the report. The chart indicates 1.4680 is still a possible upside target.

The AUD USD finished the day higher, but failed to move much to the upside following a strong surge overnight. Fresh buying and short-covering drove the Aussie higher following the release of a robust Australian jobs report early in the trading session. The Australian jobless rate eased in December while the economy added close to three times as many jobs as initially forecast.

The size of the rise in the number of jobs has increased the chances that the Reserve Bank of Australia will raise interest rates at its next meeting on February 2nd. Some economists are forecasting a 5.50% rate by December 2010. Gains may have been limited by traders who believe a tighter monetary policy in Australia and an end to China’s stimulus measures will dampen Australian exports.

The bullish action in the Australian Dollar spread to the NZD USD. The Kiwi traded sharply higher overnight but remained rangebound most of the New York session.

The weak U.S. economic data helped turnaround the USD JPY after a higher opening. The failure to reach a 50% level at 92.24 was the first sign of weakness. The second sign would have been a trade through the low for the week at 90.72, but this price held as support. A trade through this level tomorrow will put the market in a position to weaken further with 89.30 the next downside target.

The USD CHF tried to breakout to the upside through a 50% price at 1.0212 before failing to attract aggressive buyers. Downside momentum pushed it back inside a retracement zone with 1.0143 the next potential downside target. Weak U.S. economic data made the Swiss Franc more attractive. Losses were most likely limited because of the threat of intervention by the Swiss National Bank.

The USD CAD worked to a new low for the week. Greater demand for gold, copper and natural gas helped to support the Canadian Dollar. Look for this currency to remain strong as long as there is demand for raw materials. Short position traders have to be careful down in this area because of possible action by the Bank of Canada to weaken the Canadian Dollar. 1.0205 was the low in October at the time the BoC issued a stern warning regarding the price of the currency.

The GBP USD traded higher after erasing earlier losses. The strong close has this market in a position to test a 50% price at 1.6355. Upside momentum could take this market to the next level at 1.6478. The British Pound turned the main trend to up on the daily chart earlier in the week when it crossed a main top at 1.6240. This move was primarily driven by a Bank of England member’s call for higher interest rates later in the year.

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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