Bearish News Boosts Dollar’s Appeal as Safe Haven

The U.S. Dollar is up sharply overnight after a slew of negative economic events drove traders to the safety of the Greenback.

The U.S. Dollar is up sharply overnight after a slew of negative economic events drove traders to the safety of the Greenback. The Dollar is up against European and Pacific Rim nations while falling to the lower yielding Japanese Yen.

Greater demand for lower-yielding assets is helping to drive down the USD JPY this morning. Much of the weakness occurred early last night after the S&P debt rating service put a negative outlook on Japan’s AA credit rating. Talk is circulating that S&P may cut the rating to -AA after expressing concerns about Japan’s ability to gain control of its growing debt levels as well as stave off the deflationary pressures.

The Bank of Japan also voted to keep interest rates unchanged. The BoJ also reiterated its thought that deflation is its number one concern. In the meantime, it raised its deflationary forecast from a predicted drop of 0.8% to 0.5%.

In addition to the debt rating story, the news that China singled out the banks required to raise their reserve ratios for excessive lending while telling others to stop lending are signs that the Chinese government is serious about shoring up its finances and cooling down the economy.

General weakness in higher risk assets is helping to pressure the EUR USD. This market is trading weaker overnight but still above last week’s low at 1.4029. A failure at this price could trigger a further decline to 1.3800. Losses have been limited because of the possibility that Greece’s debt problems may be cured by a better than expected bond issuance.

The GBP USD is trading sharply lower after the U.K. GDP report showed the economy grew slower than expected. The low figure of 0.1% was smaller-than-forecast and showed that the economy narrowly avoided prolonging the recession.

Lower crude oil and gold continue to provide support for the USD CAD while threatening the Canadian economy. Upside momentum indicates that 1.0745 is the next target. Recent action by the Bank of Canada to provide stimulus to the economy is also helping to weaken the Canadian Dollar.

News that China is serious about tightening its monetary policy is helping to pressure the AUD USD and NZD USD. A slowdown in the Chinese economy will have a direct negative effect on the Aussie and Kiwi economies.

In addition to the news from China, global investors are becoming more risk averse. This is putting more pressure on higher yielding assets. 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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