Dollar Trading Mixed; Euro Falters after Quick Gain

The U.S. Dollar is trading mixed against the majors in a tight and narrow range. The trade weighted Dollar Index is trading lower in a follow-through move following Friday’s closing price reversal top on the daily chart. The main trend is up and will not change to down unless 79.61 is violated.

The U.S. Dollar is trading mixed against the majors in a tight and narrow range. The trade weighted Dollar Index is trading lower in a follow-through move following Friday’s closing price reversal top on the daily chart. The main trend is up and will not change to down unless 79.61 is violated.

The lack of major U.S. economic reports today could keep the Forex markets in a tight range until Fed Chairman Bernanke speaks at 10 AM CT. His comments could move the markets. Today, he is expected to speak before the House Financial Services Committee about employment growth prospects and whether fiscal stimulus is needed.

Traders will be looking for Bernanke to give them clues about the timing of future U.S. interest rate hikes. If the Fed Chairman’s comments indicate tightening then the Dollar is likely to rise. A dovish tone will be bearish.

The EUR USD is weakening after an early session surge following Friday’s closing price reversal bottom. The overnight follow-through rally stalled inside a minor retracement zone at 1.3615 to 1.3656. The main trend remains down. A trade through 1.3788 will turn the main trend higher on the daily chart. Looking at the bigger picture, this market is inside a major retracement zone at 1.3800 to 1.3483.

In order for this market to rally, there has to be an unexpected event such as major buying by China or Russia. If this becomes the case and the market rallies through 1.3788, then look for the move to continue to a major 50% level at 1.4055.

Even if the ECB bails out Greece, there is no guarantee the Euro will rally. The fear is the ECB will have to keep interest rates at historically low levels while the U.S. is getting ready to remove stimulus and then perhaps begin raising rates. Fiscal tightening in Greece, Portugal and Spain will likely help to keep recessionary pressures on the Euro. This will force the ECB to maintain its loose monetary policy.

A short-term rally may be just what speculators have been waiting for because of their desire to maintain short-selling pressure on the Euro. Speculators know that the Fed and the ECB are not on the same page and have different timetables regarding the removal of stimulus. According to the recent FOMC minutes, the Fed is getting ready to lift stimulus while the ECB may have to abandon its plans to begin withdrawing stimulus. In addition, the record 59,422 shorts currently being reported in the CFTC Commitment of Traders Report have shown no signs of letting up.

The GBP USD is trading higher but inside of Friday’s range. Oversold conditions may lead to a short-covering rally which could take this market back to 1.5583 to 1.5637, but the trend will not turn up unless 1.5814 is violated. The economy and the U.K. budget deficit continue to weight on the Pound. In addition, the country is facing an election in which there is no clear leader. Furthermore, investors seem to be losing confidence in the Bank of England’s ability to stem the economic decline.
The USD JPY is trading lower overnight following Friday’s closing price reversal top. This current rally is having trouble taking out a retracement zone at 91.16 to 91.78. The current chart pattern suggests a break to 90.34 to 89.92 is likely over the near-term. Appetite for risk seems to be waning overnight which is leading to the strength in the Japanese Yen.

Friday’s strong rally in the Euro helped trigger a closing price reversal top in the USD CHF. This helps to diminish the chances of another intervention by the Swiss National Bank which will be friendly toward the Swiss Franc. Clearly the USD CHF will take its direction from the Euro today. The main trend is up and will turn down on a trade through 1.0646. If this occurs, then look for a break to 1.0513 to 1.0423.

The USD CAD is feeling downside pressure overnight. Higher gold and crude oil are helping to give the Canadian Dollar boost. In addition to being supported by the rise in commodities, the Canadian Dollar faces virtually no risk exposure while benefitting from an improving economy. Look for a possible technical bounce at 1.0359 today, but a failure to hold this level could trigger an acceleration to the downside.

The AUD USD mounted a strong recovery on Friday because of the strength in the U.S. equity markets. A slight pick-up in demand for higher risk assets overnight is providing support this morning. A major .618 resistance level at .9035 may stop the rally today however. A break under .8956 will be a sign of weakness.

Appetite for higher risk helped trigger a rally in the NZD USD overnight, but the upside momentum seems to be slowing ahead of the U.S. opening. This market appears to be waiting for a catalyst to drive it higher. Bernanke’s talk before the House Financial Services Committee will most likely be today’s market mover. A trade through .7078 will turn the main trend to up on the daily chart.

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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