Dollar Strengthens as Sentiment Shifts Toward Safety

After trading relatively flat in the hours before the New York opening, the U.S. Dollar strengthened as sentiment shifted back toward safety.

After trading relatively flat in the hours before the New York opening, the U.S. Dollar strengthened as sentiment shifted back toward safety. Late yesterday and overnight, the Dollar appeared to be ready to weaken as demand for higher risk assets began to pick up.

Early in the trading session, news began to leak about Greece debt concerns causing the U.S. stock market to sell sold off. The release of less than stellar U.S. economic reports triggered additional selling pressure as investors pared equity market positions in anticipation of an economic slowdown. This rattled traders who then began selling higher price assets while seeking safety in the U.S. Dollar.

The EUR USD continued to weaken throughout the session while taking out sell stops under the psychological 1.40 level. Today’s selling pressure has been triggered by news that Greece’s budget woes have resurfaced. For several days, traders had become complacent while under the belief that a new bond issuance would make the Greek debt problems go away. 1.3800 remains the most likely downside target.

The British Pound is trading lower but remains inside of its five day range. It’s hard to tell at this time which direction investors prefer. Fear, and demand for lower risk is likely to drive the market lower.

Demand for safer assets helped the USD JPY turn lower. Early in the session, the Dollar was rallying versus the Yen after completing a 50% retracement and a closing price reversal bottom. A sell-off in U.S. equity markets, however, sent traders scrambling for safety, sending the USD JPY lower.

Overbought conditions and profit-taking helped to pressure the USD CAD early but the sell-off in U.S. equity markets changed risk sentiment, triggering an intraday reversal. Look for the Canadian Dollar to feel pressure as long as investors continue to shun risk. Lower crude oil and gold are also contributing to the strength in the USD CAD.

The USD CHF held on to early gains after an overnight rally took this market through the December high at 1.0507. A new main bottom has been formed at 1.0367. This market is rapidly approaching overbought status and could begin a correction at any time. Watch for a closing price reversal to signal the formation of a top. This pattern is unlikely to occur today unless risk sentiment shifts away from safety.

The intraday break in U.S. equity markets triggered a break from the high in the AUD USD as traders dumped risky assets. A similar situation developed in the NZD USD as traders became more risk averse and decided to re-enter on the short side of the market or liquidate losing long positions.

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