Boost in Appetite for Risk Pressures Dollar

An increase in demand for risk is putting pressure on the U.S. Dollar overnight. Tensions have been easing all week on speculation the European Union will accept the latest proposal by Greece to shore up its budget deficit

An increase in demand for risk is putting pressure on the U.S. Dollar overnight. Tensions have been easing all week on speculation the European Union will accept the latest proposal by Greece to shore up its budget deficit. In addition, talk is circulating that the E.U. and the International Monetary Fund are likely to rescue Greece should the situation warrant such moves. Asian traders like the news and are boosting demand for higher risk assets and higher yielding currencies.

Thin trading conditions continue to highlight the Forex markets ahead of tomorrow’s Bank of England and European Central Bank policy announcements. Trading is expected to continue to be muted following these two central bank meetings as traders will then begin adjusting positions in front of the U.S. Non-Farm Payrolls Report.

Because of the light trade, today’s U.S. economic reports are likely to have greater impact on the Forex markets. Today’s ADP Employment Report is expected to show a loss of 30,000 jobs following a decline of 84,000 in December. This report will be followed by the ISM Non-Manufacturing Index. Traders will be looking for positive momentum from this report. The preliminary guess is for a figure of 51. This will put this index above the key 50 area.

Other potential market moving reports are the Treasury refunding announcement and the weekly petroleum report. Both reports could trigger movement in the Forex markets if they are out of line with expectations. Interest sensitive markets will react to the refunding announcement. The Canadian Dollar is likely to react to the crude oil figure.

The EUR USD is trading higher overnight. Traders have been supporting this market since news broke that Greece had reached a budget solution. Today, the European Union will release its opinion on Greece’s budget proposal. In addition, traders are reacting positively to the strong possibility the IMF will rescue the Greek economy if necessary. On Thursday, the European Central Bank is expected to announce that interest rates will remain steady.

Technically, a new short-term range has been formed at 1.4194 to 1.3852. Last night, this market stopped rallying at 50% of this range at 1.4023. Overcoming this level could trigger a further rally to 1.4063.

The GBP USD spiked to the upside last night on the news that U.K. consumer confidence rose more than expected. Speculators have also been driving this market higher on the notion that the Bank of England members will provide a more hawkish opinion on the economy in tomorrow’s policy statement.

Technically, the British Pound started higher, but pulled back. The charts indicate that 1.6153 is the next upside target. 1.5960 is pegged as a possible downside target.

The USD JPY is trading mixed in light trading. Some traders expect this pair to rally on increased demand for higher yielding currencies. Others are looking for more downside pressure on speculation the Bank of Japan is unlikely to intervene to prevent the Yen from appreciating. The next upside target is 91.45. On the downside, this pair could find support at 90.03. What this market wants is clarity at this time.

The strengthening Euro is taking the pressure off the Swiss National Bank to intervene. This is contributing to the weakness in the USD CHF. The short-term range is 1.0367 to 1.0642. Last night’s test of 50% of this range at 1.0504 encouraged profit-taking and led to a short covering rally. Traders will be watching the news from the European Union today regarding the Greece budget situation. Any positive news which drives the Euro higher is likely to be bullish for the Swiss Franc.

Higher stock, gold and crude oil prices should continue to support the Canadian Dollar. Gold, however, is trading inside of a retracement zone which could limit losses in the USD CAD. Today’s crude oil inventory report is expected to show a rise which could pressure oil prices. The USD CAD is trading tentatively this morning as traders await this report. Technically, the main range is 1.0224 to 1.0720. The first downside target today is uptrending Gann angle support at 1.0504. Short-term oversold conditions could drive this market back up to 1.0633.

Demand for higher risk assets is helping to support the NZD USD. Trader appetite for risk is up in Asia. This is expected to spillover to the U.S. markets if stock prices continue to rise. A new main range has been formed at .7442 to .6995. This makes .7281 a potential upside target, however, a downtrending Gann angle at .7162 may provide some resistance today. A failure to follow-through to the upside could trigger a correction back to .7073.

The AUD USD is holding steady to better following yesterday’s volatile trade. Although traders do not seem to want to aggressively trade the long side of this market, they aren’t selling it either. Now that the negative news is out of the way, it looks as if traders may try to build a support base. If upside momentum can build, then this market may retrace back to .9055 over the medium term.

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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