Concerns about Slowdown in Chinese Economy Boosts U.S. Dollar

The U.S. Dollar is trading higher against a basket of currencies as traders seem to have taken risk out of the equation.

The U.S. Dollar is trading higher against a basket of currencies as traders seem to have taken risk out of the equation. Earlier in the week, China announced measures to tighten up bank lending requirements. This is raising concerns that China’s economy may slowdown, thus decreasing demand for commodities and other higher risk assets.

Today’s U.S. economic reports will highlight inflation and production. The Consumer Price Index is expected to show little growth with guesses ranging from 0% to 0.1%. Industrial Production is expected to increase by 0.6% to 71.9%

Although these reports are expected to produce knee-jerk reactions in the Forex markets today, the primary focus will be on risk sentiment. This week’s move by China is telling the market that interest rates will be rising and the government is getting ready to slowdown, if not end, its stimulus measures.

The EUR USD is trading weaker as traders are raising concerns about Greece’s ability to gain control of its debt issues. The daily chart indicates that a short-term range has been formed at 1.4217 to 1.4579. This range creates a retracement zone at 1.4386 to 1.4217. Overnight, the upper end of this zone was tested.

Overnight, the GBP USD tested a major 50% price at 1.6355 and sold off. The main range is 1.6870 to 1.5832. A key retracement zone has been formed at 1.6355 to 1.6478. A new short-term range has been formed at 1.5895 to 1.6354. This range sets up the next possible downside target at 1.6125 to 1.6036.

Concerns over a slowdown in the Chinese economy are driving traders to lower yielding assets, namely the Japanese Yen. Overnight the USD JPY is trading weaker. Based on the main range of 84.83 to 93.77, the charts indicate that 89.30 is the next downside target.

After trading in a tight range for most of this week, the USD CHF is finally showing upside momentum following a breakout over 1.0212. A new short-term range has been formed at 1.0507 to 1.0130. This range sets up a possible short-term retracement to 1.0318 to 1.0363.

The USD CAD held the October bottom at 1.0205 and is now trading higher. The last time the market was down at this level, the Canadian government issued a stern statement regarding its concerns over the rise in the Canadian Dollar and its negative impact on the economy. This week, Prime Minister Harper voiced similar concerns. Shorts have to be nervous in this area out of fear the BoC may apply measures to the market to weaken its currency.

A weaker Chinese economy will have a direct effect on the Australian economy. This is causing speculators to take short positions at current levels while some longs take profits after a sharp rise. Earlier in the week, the AUD USD posted a strong gain on speculation the Reserve Bank of Australia would raise interest rates a third time in February. After spiking higher on Thursday, the Aussie failed to attract fresh buying. The daily chart indicates plenty of room to the downside with .9031 to .8961 the next potential downside target.

A slowdown in the Chinese economy will also have a negative impact on the New Zealand economy. This chart is also indicating the NZD USD is vulnerable to the downside. The next possible downside target is .7266 to .7150.

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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