Dollar Likely to Get Direction from This Week’s Central Bank Meeting

The U.S. Dollar is trading mostly lower versus most major currencies overnight with the exception of the Japanese Yen. Following last week’s news driven rally, Dollar traders may choose to stand on the sidelines or lighten-up positions during the two days leading up to the Fed FOMC meeting on January 27.

The U.S. Dollar is trading mostly lower versus most major currencies overnight with the exception of the Japanese Yen. Following last week’s news driven rally, Dollar traders may choose to stand on the sidelines or lighten-up positions during the two days leading up to the Fed FOMC meeting on January 27.

Short-term overbought conditions are also contributing to this morning’s weakness. In addition, investors are still trying to decipher the impact on the Dollar of Obama’s proposal to restrict financial institution trading. Concerns are also building surrounding the approval of Fed Chairman Bernanke to another term. Both events triggered knee-jerk reactions in U.S. equity markets late last week and could be signaling less future demand for U.S. assets.

The EUR USD is up overnight. Traders should continue to monitor the budget situation in Greece. On the bearside, traders are still concerned about Greece’s budget deficit spiraling out of control due to the possibility of a default. This matter is not expected to go away and may even escalate if similar problems develop in Spain and Portugal.

The GBP USD is trading higher overnight. Oversold conditions and position squaring is helping to boost the British Pound. The U.K. economy is still the driving force behind this market’s weakness.

The USD JPY is trading higher following a volatile week which saw the Greenback lose ground. This market could turn around quickly today if U.S. stock markets weaken and demand for lower yielding assets rises. The Bank of Japan is expected to leave interest rates and stimulus alone at this week’s meeting, but could threaten to intervene if this currency pair drops below 90.00.

The USD CHF is trading lower overnight. Last week’s closing price reversal top is contributing to this morning’s weakness. The chart pattern suggests that this market is likely to continue to weaken until it reaches a key support zone at 1.0312 to 1.0269. Traders should also watch the Euro. A sudden drop in the Euro versus the Swiss Franc could lead to renewed talk of intervention by the Swiss National Bank.

Oversold conditions in gold, crude oil and equities could help pressure the USD CAD today. Overall, this market can best be described as rangebound. A stronger Canadian Dollar has been met by Bank of Canada activity which helps to weaken it. This pattern is likely to continue until the Canadian economy can sustain itself.

Weaker demand for commodities and equities helped to pressure the AUD USD and NZD USD last week. The weakness was triggered by activity in China which signaled the start of a tighter monetary policy. This move is likely to lead to less demand for Australian and New Zealand exports. Overnight, firmer gold and equities is leading to light short-covering. This week the Reserve Bank of New Zealand is likely to leave interest rates unchanged while remaining committed to leaving rates low until late 2010.

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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