Dollar Weakens Early Before Bouncing Off Low

Position squaring overnight helped pressure the Dollar on the opening before friendly U.S. economic data helped trigger an intra-day short covering rally.

Position squaring overnight helped pressure the Dollar on the opening before friendly U.S. economic data helped trigger an intra-day short covering rally. Better than expected U.S. manufacturing data is the catalyst behind today’s late session turnaround.

Traders should look for a choppy, two-sided trade this week in anticipation of Friday’s U.S. Non-Farm Payrolls Report. Baring any surprise economic announcements from China or Greece, investors are should be looking for a lightening of long Dollar positions as longs are likely to cut profitable positions ahead of the February 5th report.

The Dollar is getting most of its mid-session pressure from a stronger Euro and better risk-related currencies such as the Canadian Dollar, Australian Dollar and New Zealand Dollar.

The EUR USD is trading better at the mid-session after a firm overnight session. Relaxed concerns about the fiscal crisis in Greece are triggering today’s short-covering rally. . Upside momentum could take this market back to the last main bottom at 1.4029. Key support remains 1.3800. This price represents a major 50% retracement level.

Concerns over a poor economy and growing fiscal deficit are helping to pressure the GBP USD. Traders are pessimistic about how the economy will respond following the ending of the Bank of England’s quantitative easing program. Early signs indicate that bearish traders are respecting the late December main bottom at 1.5832.

The USD JPY is trading higher following reports which showed improvement in the U.S. economy. Traders seem to be taking risk off the table, pressuring the Japanese Yen. The chart indicates that upside momentum could trigger a rally back to 91.45 over the near-term.

The USD CHF is down at the mid-session, but off its low. A better than expected U.S. economic report helped trigger an intra-day short covering rally. Today’s trading action shows that conditions have calmed after last Friday’s surge to the upside. The weaker Euro versus the Swiss Franc late last week may have triggered an intervention by the Swiss National Bank. Traders should continue to monitor the situation in Greece to see if it triggers another sharp break in the Euro. Based on current conditions, the USD CHF may break back to 1.0495 before finding support.

Firmer equities, gold, and crude oil have put the USD CAD in a position to form a closing price reversal top. The USD CAD rallied last night, but buyers stopped short near the December top at 1.0745. Demand for higher risk and overbought conditions and triggering the profit-taking break today. The chart indicates this market is vulnerable to the downside with 1.0472 the next likely target.

The AUD USD is trading higher after earlier weakness. This market is in a position to post a daily closing price reversal bottom. Stronger demand for higher risk assets, short-covering and oversold conditions are contributing to the rally. On February 2nd the Reserve Bank of Australia will make its monetary policy announcement. There doesn’t appear to be a strong consensus at this time whether it will raise interest rates. Some traders feel that the news that China is tightening its monetary policy may have a negative effect on the Australian economy. This is leading to speculation the RBA will pass on a rate hike.

Demand for higher risk assets and oversold conditions are helping to trigger a short-covering rally in the NZD USD this morning. The charts indicate that upside momentum is building which could trigger a short-covering rally back to .7218.