U.S. Dollar Rallies as GBP USD takes Drubbing

The U.S. Dollar is trading higher this morning against most major currencies except the Japanese Yen as global sovereign debt and economic issues drive up demand for lower yielding assets.

The U.S. Dollar is trading higher this morning against most major currencies except the Japanese Yen as global sovereign debt and economic issues drive up demand for lower yielding assets.

The GBP USD is trading sharply lower as the trend accelerated to the downside following a break of recent minor support at 1.5352. The heavy selling pressure took the Cable down to a major 50% price at 1.5272 where it has found temporary support. The poor outlook for the U.K. economy was reinforced overnight when it was reported that Fourth Quarter Investments unexpectedly weakened.

The bad news overnight reinforced bearish investor sentiment that the U.K. economy risks a protracted recovery. Furthermore, talk earlier this week that the Bank of England is considering expanding and extending its quantitative easing program continued to feed the bear market.

Following this initial move to the downside, traders may take a break as they await tomorrow’s final Fourth Quarter GDP Report.

The EUR USD is down sharply overnight as Greek sovereign debt issues once again threaten to spread throughout Europe. It’s been reported that the S&P Corp. is considering another cut in Greece’s debt rating. Fear is spreading that this Greece may not be the only country facing a debt rating cut. The overnight 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 have been selling the U.S. Dollar overnight while taking protection in the lower yielding Yen. Last night’s downside action stopped at a 50% price at 89.30, triggering a technical bounce, but traders most likely don’t expect this level to hold as support.

Problems with the Euro are helping to boost demand for the USD CHF. The weaker the Euro gets, 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 stronger Dollar is putting pressure on Gold and Crude Oil which is helping to boost demand for the USD CAD. Both precious metals and energy account for a large percentage of the Canadian economy. Holding above 1.0574 could drive this market to the next retracement level at 1.0623.

Falling demand for higher yielding assets is putting pressure on the AUD USD and NZD USD. Downside momentum 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.

In other news, Fed Chairman Bernanke will continue his testimony before the House Financial Services Committee. Yesterday he said the U.S. economic recovery has been “nascent” and requires low interest rates to help it sustain growth. He also said that low employment and subdued inflation allow the FOMC to keep downside pressure on interest rates.

Today’s January Durable Goods Report is expected to show a rise. This is a sign of an improving manufacturing sector. Weekly Initial Jobs Claims are expected to fall, but this report has offered surprises recently. Look for this report to move the markets.

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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