Dollar Remains Strong versus Most Majors; Risk Aversion Driving Yen Higher

The U.S. Dollar continues to mount strong gains versus most major currencies at the mid-session as traders seek safe harbor in the Greenback.

The U.S. Dollar continues to mount strong gains versus most major currencies at the mid-session as traders seek safe harbor in the Greenback. Risk adverse traders are driving investors out of higher risk assets and into the lower yielding Japanese Yen. Sovereign debt and economic issues are encouraging investors to limit their exposure to risky assets. This morning’s weaker than expected U.S. Weekly Job Claims Report sent the Dollar higher and equity markets lower.

The GBP USD fell sharply after the New York opening following a hard overnight sell-off. This current move to the downside accelerated following a break of recent minor support at 1.5352. The heavy selling pressure has pushed the Cable through a major 50% price at 1.5272. The poor outlook for the U.K. economy was reinforced overnight when it was reported that Fourth Quarter Investments unexpectedly weakened. In addition, traders are worried about the budget deficit and the possibility the Bank of England will expand and extend its quantitative easing program.

The EUR USD is down sharply as Greek sovereign debt issues once again threaten to spread throughout Europe. Investors have been reacting to the news that the S&P Corp. is considering another cut in Greece’s debt rating. Fear is spreading that Greece may not be the only country facing a debt rating cut. The current weakness is threatening to take out last week’s swing bottom at 1.3443.

Risk aversion is helping to drive up demand for the Japanese Yen. Traders are selling the U.S. Dollar overnight while taking protection in the lower yielding Yen. This morning’s downside action took out a 50% price at 89.30 and is threatening to test an uptrending Gann angle at 88.77. Watch for a possible technical bounce at this level following the first test.

Today’s extension of the break in the Euro is helping to boost demand for the USD CHF. The weaker the Euro becomes, the greater the chance the Swiss National Bank will intervene to protect its currency. Look for the USD CHF to take out its most recent top at 1.0897 if the Euro takes out its bottom at 1.3443.

The news that traders are betting the Bank of Canada will refrain from boosting interest rates for quite some time is pressuring the Canadian Dollar. This news helped trigger a breakout in the USD CAD through a .618 retracement level at 1.0623. Although Gold has recovered following a sharp overnight break, weaker Crude Oil and stock prices are driving investors out of higher risk assets.

Falling demand for higher yielding assets is putting pressure on the AUD USD and NZD USD at the mid-session. Downside momentum is building which could drive the Aussie to .8823 today. The New Zealand Dollar took out a key retracement level overnight. This level is now new resistance at .6910.

This morning, Fed Chairman Bernanke reiterated his stance on lower interest rates. In addition, he defended the Fed’s ability to supervise banks and urged China to allow a more flexible exchange rate.

The January Durable Goods Report released this morning was better than expected, but Dollar traders hardly noticed the news because of the unexpected rise in the Weekly Initial Claims figure.

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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