U.S. Dollar Finishes Flat after Mid-Session Weakness

The U.S. Dollar regained most of its mid-session loss to finish only slightly worse than Tuesday.

The U.S. Dollar regained most of its mid-session loss to finish only slightly worse than Tuesday. Comments from Fed Chairman Bernanke triggered an early session break after he reiterated the Fed’s stance that interest rates would remain low for an “extended period”.

Bernanke also emphasized that last week’s discount rate hike was not an indication of monetary policy tightening. This was a concern for most investors who wanted the Chairman to give a few clues as to the timetable of additional hikes later in the year. Based on the Fed’s assessment of the economy, it is very likely that the Fed will leave interest rates unchanged for the rest of the year.

The lack of signs of sustainable growth in the economy is what is keeping the Fed from hiking rates. This is also what initially drove the Dollar lower. In addition, traders seemed to be squaring up positions after over-reacting to last week’s surprise hike in the discount rate.

The EUR USD rallied after Bernanke’s statement despite on-going turmoil in Greece triggered by a labor strike. Technically, this market held support at a .618 retracement level at 1.3483 and a main bottom at 1.3443. Last Friday’s confirmed closing price reversal bottom pattern remains intact. The charts are also suggesting that regaining 1.3656 will be a sign of strength, but it will take a trade through the old main top at 1.3788 to turn the main trend to up.

The GBP USD spent most of the day inside of Tuesday’s range and basically treaded water the entire day. The British Pound had almost no reaction to Bernanke’s comment about the future of U.S. interest rates. Investors instead chose to focus on the problems in the U.K. economy, the growing budget deficit and Friday’s final fourth quarter GDP.

The prospect of lower U.S. interest rates for an “extended period” helped weaken the USD JPY initially, but the Dollar recovered versus the Yen as the market approached the mid-point of the session. Technical factors seemed to drive this market up after fresh selling failed to trigger a break to the downside following a penetration of a .618 retracement level at 89.92. Intra-day support was established at this price however, regaining the 50% level at 90.34 will be needed to show strength.

The stronger Euro deadened the chances of another intervention by the Swiss National Bank which helped to pressure the USD CHF. This pair traded inside of Tuesday’s range which could have been an indication of impending volatility. Last Friday’s closing price reversal top pattern remains intact, which makes this market vulnerable to a short-term correction over the next 2 to 3 days. If the Euro picks up strength, then look for this move to continue to develop as long as the main top at 1.0897 remains valid.

Bernanke’s comments about the U.S. economy and the direction of interest rates helped weaken the U.S. Dollar while triggering short-covering rallies in Gold and Crude Oil. The pick-up in demand for commodities put pressure on the USD CAD after this pair completed a short-term retracement to a 50% price at 1.0574. Wednesday’s higher, high and lower close could lead to more downside pressure tomorrow. Regaining 1.0574 however could trigger further upside momentum to 1.0623.

Stronger equity markets as well as overall demand for higher risk commodities helped to boost the AUD USD and NZD USD. Although both markets are in downtrends, further upside movement will be dictated by investor demand for higher yielding assets.

On Wednesday, traders seemed to be trying to erase last week’s loss that was triggered by the Fed’s hike in the discount rate. This was taking place because Bernanke did a good job convincing investors that the Fed’s surprise move did not mean a tightening of monetary policy and that interest rates would remain low for an “extended period”.

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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