Upbeat Fed Statement, Obama Speech Fuels Demand for Higher Risk

The U.S. Dollar is trading flat with a slight bias to the downside after yesterday’s upbeat Fed statement and last night’s State of the Union address from President Obama.

The U.S. Dollar is trading flat with a slight bias to the downside after yesterday’s upbeat Fed statement and last night’s State of the Union address from President Obama.

Traders are reacting to the Fed’s statement calling for a “moderate” economy rather than a weak economy. President Obama’s call for a jobs plan and political unification is giving investors confidence to take on a little more risk.

Technical factors may also be playing a major role in the developing weakness in the Dollar since many markets reached oversold status after nearing old bottoms or major retracement levels.

Today’s Durable Goods and Jobless Claims Reports should offer a little more insight into the condition of the U.S. economy. Durable Goods are expected to be better at 1.6%. Jobless Claims should show a seasonally adjusted increase of 36,000 to 482,000.

The EUR USD continued to weaken overnight after taking out stops under the psychological 1.40 level. Regaining this level will be a sign of strength, but the trend will not turn to up until it crosses 1.4194.

The British Pound continues to build a support base with a bias to the upside. Although the U.K. economy showed weakness earlier this week after it was reported the GDP rose less than expected, investors seem confident that the economy has turned the corner.

The USD JPY is trading better overnight following the friendly news from the Fed and the upbeat speech from President Obama. Technically, this market tested a major 50% level at 89.30 which brought in fresh buyers and triggered a profit-taking short-covering rally. The current chart pattern suggests a possible retracement to 91.45 to 92.00.

Overbought conditions and profit-taking is helping to pressure the USD CAD. Long traders finally gave up their positions after a key support angle failed overnight. Demand for higher risk assets, such as equities and commodities, is also helping to drive the Canadian Dollar higher. Higher stocks, gold and crude oil could support a rally today. The chart indicates a correction to 1.0458 to 1.0402 is likely over the short-run.

Overnight, the USD CHF continued its up move with a trade 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.

Stronger demand for higher risk and oversold conditions are helping to support the AUD USD. The Aussie is finding support inside of a retracement zone which could trigger a short-covering rally back to .9119 to .9169. Traders may also be squaring up positions ahead of the February 2nd Reserve Bank of Australia meeting.

A similar situation is developing in the NZD USD. Although the New Zealand economy continues to remain weak and interest rates low until the middle of 2010, conditions are ripe for a short-covering rally back to .7231 to .7281.

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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