Obama Plan Seen as Dollar Negative

The U.S. Dollar is down against a basket of currencies overnight as global investors assess the impact of President Obama’s proposal to limit trading by financial institutions.

The U.S. Dollar is down against a basket of currencies overnight as global investors assess the impact of President Obama’s proposal to limit trading by financial institutions. The early read is that investors feel the proposal is Dollar negative and in the long-run may discourage investors from buying U.S. assets.

So far the reaction has been mild, highlighted by light position evening. Traders may also be using this proposal as an excuse to take profits following a strong surge in the Dollar and amid overbought conditions. Trading may not be a volatile as Thursday as foreign central banks assess Obama’s proposal while working on banking regulation plans of their own.

The EUR USD is trading better. Oversold conditions and position evening following the U.S proposal to curb trading by financial institutions are the primary drivers behind the rally. A persistent rumor that the European Union may lend Greece money to shore up its budget deficit helped limit losses yesterday, and may still be in the market today. An agreement by the EU and Greece is likely to trigger a massive short-covering rally which could send this currency to 1.4340 rather swiftly.

The Obama proposal could not help the GBP USD which fell once again overnight. A report that U.K. retail sales grew at a slower pace than forecast is helping to weaken the British Pound overnight. At this time, the Pound is plowing through minor retracement points and holding a level at 1.6108. A break through this price is likely to trigger an acceleration to 1.6071.

The USD JPY is weakening further following yesterday’s closing price reversal top. Downside momentum is building which could send this pair to a major 50% price at 89.30. President Obama’s plan to curtail trading by financial institutions is making lower yielding assets more attractive to the benefit of the Yen. The move in the Yen is likely to draw a stern comment from the Bank of Japan which favors a weaker currency.

Downside pressure in on the USD CHF following yesterday’s closing price reversal top. The combination of overbought conditions and less demand for the Dollar is helping to apply the pressure. The slightly better Euro is also helping to aleve some of the pressure on the Swiss National Bank to intervene. The chart pattern suggests a move to 1.0312 is likely over the short-run.

Despite calls for a weaker Dollar, the USD CAD continues to rally. Currently this market is on the bull side of a 50% price at 1.0484 and testing a .618 level at 1.0546. A breakout over this level could trigger an acceleration to 1.0600.

The new proposal by President Obama to eliminate trading by financial institutions is helping to support the AUD USD overnight. Traders also feel that the break this week triggered by China’s move to tighten its monetary policy may have been overdone to the downside. Technically, this pair is trying to establish support inside of a retracement zone at .9031 to .8961. A closing price reversal bottom is possible if the Aussie can finish higher. The charts indicate the possible upside objective is .9174.

Technical factors may be contributing to the possible bottoming action in the NZD USD. Oversold conditions coupled with the possibility that U.S. assets may become unattractive if Obama’s proposal to limit bank trading grows legs. Key support comes in at .7065. On the upside, .7150 is resistance.

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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