Euro Rebounds Versus Dollar; Trader Demand for Risk Picks Up

Greater appetite for risk is helping to pressure the Dollar overnight. Reduced demand for safer assets is helping to drive up higher-yielding currencies.

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Greater appetite for risk is helping to pressure the Dollar overnight. Reduced demand for safer assets is helping to drive up higher-yielding currencies. The weaker Dollar is providing a boost for stocks and commodities.

Oversold conditions are helping to buoy the EUR USD. Some traders feel that short traders may have overreacted to the situation in Greece. This is helping to trigger a short-covering rally due to oversold conditions. News that the European Union may be considering providing aid to Greece may also be encouraging traders to lighten up short positions.

The GBP USD is trading slightly better prior to the New York opening. A report showing that inflation accelerated in January to its fastest pace in 14 months helped trigger a short-covering rally. Inflation was up 3.5% which exceeded the Bank of England’s target of 2.0%. This prompted a response by BoE Governor Mervyn King to explain the rise. Traders are becoming less confident in the BoE’s ability to help the economy while at the same time preventing a surge in inflation.

The Dollar is down slightly against the Japanese Yen. Despite increased demand for risky assets, the USD JPY is under pressure. This is most likely being triggered by Japanese repatriation of Yen due from bond redemptions and coupon payments on Treasury securities. Traders are also expressing their concerns about the Bank of Japan’s ability to control deflation over the near-term. Investors feel this is going to force the BoJ to maintain interest rates at 0.10%.

The USD CHF is losing ground overnight. The strengthening Euro is diminishing the possibility of an intervention by the Swiss National Bank. This is helping to trigger a short-covering rally.

Stronger gold and crude oil are boosting the Canadian Dollar. Greater demand for risky assets is leading to profit-taking in the USD CAD after a prolonged move up. Overall, this pair is likely to remain inside of its long-term range. Higher stock prices could fuel a rally throughout the day.

News that the vote by the Reserve Bank of Australia members to pass on an interest rate hike in February was closer than estimated indicates that further rate hikes are likely. This is helping to support the AUD USD today. A pick-up in demand for risky assets is also helping to boost the NZD USD.

The current shift in risk sentiment is likely to pressure the Dollar. Traders will approach the short-side with caution however in anticipation of additional bearish news regarding the Greece’s fiscal woes.

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