U.S. Dollar Higher as Risk Aversion Dominates Trade

The U.S. Dollar is up sharply against all major currencies. Traders seemed a little nervous this morning and maintained their risk adverse stance throughout the session.

The U.S. Dollar is up sharply against all major currencies. Traders seemed a little nervous this morning and maintained their risk adverse stance throughout the session. One of the biggest concerns for investors at this time is the continuation of the global recovery. Some feel that the sovereign debt issues in Europe are stalling the recovery. This combined with a possible loss of jobs in tomorrow’s U.S. Non-Farm Payrolls Report is triggering today’s flight to the relatively safer, lower-yielding U.S. Dollar.

The EUR USD was stable this morning as traders seemed pleased with investor demand for Greek bonds. It began to fall apart after the European Central Bank left interest rates unchanged and ECB President Trichet said that growth in the Euro Zone would be uneven.

Traders fear that a slow down in the Euro Zone will hamper the ECB’s ability to raise interest rates. This will lead to deflation as most countries will be forced to cut spending. In addition, the Euro may lose the interest rate differential battle if other countries such as Canada and the United States begin to withdraw stimulus and hike their benchmark interest rates. This is most likely the primary reason behind today’s selling pressure.

The Bank of England also left interest rates unchanged along with its quantitative easing program. Some traders felt going into the report that the BoE would either expand or extend its asset buyback program. Nonetheless, the GBP USD is selling off at the mid-session mostly due to the weakness in the Euro. Other bearish factors such as the weak economy, political uncertainty and the wide budget deficit continue to make the British Pound one of the weakest currencies.

The USD JPY is trading higher despite increased demand for lower yielding assets. Technical factors could be contributing to the intra-day rise as strong buying came in after a test of a major Fibonacci retracement level at 88.24. In addition, the failure to accelerate to the downside after breaking a previous swing bottom at 88.55 may have scared shorts out of the market. At this time, the minimum upside target is 89.30. A rally through this level could trigger a further move to 90.14 over the near-term.

The USD CHF is up sharply at the mid-session due to the weakness in the Euro. Traders once again feel that an intervention by the Swiss National Bank is imminent as it tries to protect its valuable export market.

The AUD USD is down after failing to hold a 62% retracement level at .9042. Increased demand for lower risk assets is contributing to the weakness. Concerns over the economy and a drop in demand for higher yielding assets are pressuring the NZD USD. Downside momentum has put this currency pair in a position to test the recent main bottom at .6806.

Finally, weaker gold and crude oil prices have triggered a sell-off in the Canadian Dollar. Oversold conditions in the USD CAD and fear that the Bank of Canada may “verbally intervene is also contributing to the weakness.

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