Problems Mount against British Pound; Short-covering Supports Euro

Sovereign debt issues in Greece and a poor jobs report in the U.S. helped the Dollar finish better against most major currencies.

Sovereign debt issues in Greece and a poor jobs report in the U.S. helped the Dollar finish better against most major currencies. Throughout the day, investors seeking a safe harbor supported the Greenback. Early in the session the Dollar got a boost when rumors spread that the S&P Corp. was considering a cut in Greece’s debt rating. Shortly after the New York session opening, news that Weekly U.S. Jobless Claims rose unexpectedly triggered another strong rally in the Dollar.

The EUR USD was down sharply most of the trading session as Greek sovereign debt issues once again threatened to spread throughout Europe. Investors reacted to the rumor that the S&P Corp. was considering another cut in Greece’s debt rating.

Fear began to spread on the thought that Greece may not be the only country facing a debt rating cut. The lack of selling pressure as the Euro approached the recent bottom at 1.3443 triggered a short-covering rally late in the session which turned the Euro higher for the day.

Some believe that bearish traders were hesitant to put on new positions this close to the recent bottom out of fear of a possible bond issue next week. Bearish traders may be waiting to see how much buying interest is in this bond issue before initiating their next wave of short-selling.

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 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. Tomorrow’s Fourth Quarter GDP Report should move the markets and create volatility.

Risk aversion helped drive up demand for the Japanese Yen. Traders sold 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 while threatening to test an uptrending Gann angle at 88.77. Traders are looking for more downside pressure without fear of an intervention since this current Japanese administration doesn’t feel the need to weaken the Yen if its strength comes in an orderly fashion and is based on sound economic reasons. .

Today’s early extension of the break in the Euro helped to boost demand for the USD CHF sending it higher. The late session turnaround in the Euro triggered a short-covering rally in the Swiss Franc causing the USD CHF to give back most of its gains, but this market still settled lower after the Euro was unable to maintain its upside momentum.

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 breaks 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 pressured the Canadian Dollar. This news helped trigger a breakout in the USD CAD through a .618 retracement level at 1.0623.

Although Gold finished higher following a sharp overnight break, falling Crude Oil and stock prices drove investors out of higher risk assets. This weakened the Canadian Dollar. The strong finish in gold and the higher close in U.S. equities caused the USD CAD to close below its high because of profit-taking.

Falling demand for higher yielding assets put pressure on the AUD USD and NZD USD throughout the trading session. Downside momentum drove the Aussie to a key 50% level at.8823 today. The New Zealand Dollar took out a key retracement level overnight. This level is now new resistance at .6910. The late session recovery in U.S. equities helped both of these currencies finish well off their lows.

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.