Higher Appetite for Risk Pressures U.S. Dollar Overnight

Concerns about sovereign debt issues in Greece eased overnight helping to increase demand for higher risk assets.

Concerns about sovereign debt issues in Greece eased overnight helping to increase demand for higher risk assets. In addition, good economic news from Japan and higher stock markets in Asia helped increase optimism over the global economic recovery.

With tensions easing regarding the sovereign debt problems in some of the European Union nations, Forex trader focus will be on U.S. economic reports.

Out of the box first this morning will be the final U.S. Fourth Quarter GDP Report. The consensus range is 5.4% to 6.0%. The preliminary estimate at 5.7% is today’s target. With demand for higher risk assets higher this morning, a better than expected GDP number may pressure the Dollar. Some feel however that a better number will send the Dollar higher because the improving economy will indicate the Fed may have to raise interest rates sooner than expected.

The Chicago Purchasing Manager’s Index due out at 8:45 CT is projected to be in a range of 55.8 to 64.3 with the consensus at 60. Traders want to see continued strength in this index as it indicates an improving economy. Like the GDP figure, it difficult to project at this time how the Dollar will react. It will either go up because of the improving economy or down because of increased appetite for risky assets.

The University of Michigan Consumer Sentiment figure is expected to come in at 73.7, inside the range of 73.0 to 75.0. Investors will be watching the expectations component of this index for clues as to how consumers feel about the economy. High unemployment and worries over jobs may have a negative influence on this month’s index.

Finally, Existing Home Sales should come in at 5.5 million. A weaker than expected number should help to drive investors into the U.S. Dollar.

The EUR USD is up overnight but trading inside Thursday’s range. In fact, Wednesday’s range of 1.3692 to 1.3497 has held this market in check for two days. This formation indicates impending volatility. Watch for a break-out on either side of the market. Traders are likely to chase the market once it commits to a direction. Overnight, Euro Zone consumer inflation was 1% as predicted. On Thursday, the Euro firmed after reports of a Greek bond issuance next week surfaced. Traders feel that strong support for this bond issuance will indicate the European Union is close to a solution for Greece’s deficit problems. The rally took place despite reports that the S&P Corp. was poised to cut Greece’s debt rating.

Despite a rise in Fourth Quarter GDP, the GBP USD is trading lower overnight. This is an indication of just how weak the U.K. economy is. Traders still feel economic problems, political woes and the possibility of more quantitative easing by the Bank of England may be too much to overcome in the short run.

Greater demand for higher risk assets is helping to pressure the Japanese Yen while boosting the Canadian Dollar, Australian Dollar and New Zealand Dollar.

Reported improvements in Japanese retail sales and industrial production helped boost stock prices in Asia which in turn led to the pick up in demand for higher yielding assets.

Finally, the improving Euro is helping to ease the possibility of an intervention by the Swiss National Bank. This is triggering the weakness in the USD CHF.

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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