U.S. Dollar Up; Investors Scaling Back Appetite for Risk

The U.S. Dollar is trading higher against all major currencies except the Japanese Yen as risk sentiment has shifted back toward safety.

The U.S. Dollar is trading higher against all major currencies except the Japanese Yen as risk sentiment has shifted back toward safety. Investors are buying the Dollar and the Yen as they scale back their appetite for more risky investments.

Today, U.S. traders will focus on the S&P Case-Shiller HPI and Consumer Confidence Reports. Economists are predicting that home prices probably declined at the slowest pace since May 2007. The Consumer Confidence Report could show a decline as consumers may be reacting to the current bleak employment outlook. The lack of jobs growth most likely also contributed to a drop in confidence. It is believed that the strength of the U.S. economic recovery will depend on improvements in the labor market. Housing prices are expected to remain down as long as consumer confidence is down.

The EUR USD rallied overnight, but has since backed down as more concerns have been raised over Greece’s ability to handle its ballooning budget deficit. This market has reversed course after retracing into a resistance zone at 1.3615 to 1.3656. A new two-day main bottom has been formed at 1.3443. The main top and change in trend point remains 1.3788.

News that German Business Confidence unexpectedly weakened in February also pressured the Euro along with reports that the outlook for Spain remains bleak following reports that bad loans are likely to continue to rise as the labor situation deteriorates. And the hits just keep on coming!

The GBP USD is down sharply this morning. This weakness is expected to continue into the New York session. The charts are indicating more downside potential is likely. Combined with the weak fundamentals, the Pound remains one of the weakest currencies.

The signs are there that the U.K. economy is still at risk for a protracted recovery. Additional pressure is coming from dovish comments from the Bank of England during its testimony before Parliament.

Overnight, BoE Governor Mervyn King said that the BoE stands ready to take appropriate measures to shore up the economy. He also stated that there still are downside risks to the economy. Finally, he reiterated that inflation was likely to fall below 2%. Many traders feel that this indicates the BoE is leaning toward expanding and extending its quantitative easing program.

Treasury adviser Roger Bootle said the U.K. economy is entering a “very grave stage” and the Bank of England should expand its bond-buying program. According to BoE Deputy Governor Charles Bean “a weaker currency will boost exports”.

Both of these statements pointed toward a lower British Pound. This bearish scenario is likely to continue throughout the day.

The USD CHF is mounting a strong rally overnight. Talk is circulating that the Swiss National Bank intervened once again when the Euro weakened. The SNB is trying to prevent appreciation in the Franc. A higher priced Swiss France hurts exporters’ sales abroad. This could be crippling to the economy since exports make up at least half of Switzerland’s GDP.

The USD JPY is faltering as aversion to risk is up. Traders are jittery about holding on to higher risk assets and are seeking shelter in the lower yielding Japanese Yen.

The commodity-linked Canadian Dollar is feeling pressure because of the drop in gold and crude oil. Both precious metals and energy make up a large portion of the Canadian GDP so lower prices will adversely affect the economy. The overall picture indicates the currency is likely to remain rangebound.

Falling demand for higher risk is pressuring the higher yielding Australian and New Zealand Dollars. Overnight both currency pairs rallied, only to run into resistance and selling pressure. Both are also in positions to post daily closing price reversal tops which could trigger 2 to 3 day corrections of at least 50% of the last major rally.

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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