Demand for Risk Could Drive U.S. Dollar Lower

Firmer stock indices, gold and crude oil are indicating that trader demand for risk could be up today which could pressure the Dollar versus commodity-linked currencies.

Firmer stock indices, gold and crude oil are indicating that trader demand for risk could be up today which could pressure the Dollar versus commodity-linked currencies.

After trading higher overnight, the trade-weighted Dollar Index has turned down as it trades near its low shortly before the U.S. opening. This may be an indication that risk sentiment is shifting toward the riskier side.

The EUR USD had a rocky night but has recovered all of its earlier loss and is now trading better. Downside pressure has eased since Greece has agreed to implement budget cuts. Traders are also becoming more optimistic that some sort of bailout package announcement is imminent. The ability to turn positive after a report last night showed that German trade data came in worse than expected is a sign that there are buyers out there. The key to driving this market higher will be to find a way to get the massive amount of shorts out of the market.

The British Pound is feeling more downside pressure overnight. The absence of buyers is clearly evident as traders are approaching the long side of the market with caution. The major concern amongst traders at this time is whether the credit agencies will issue a downgrade of U.K. debt. Adding to the pessimism is the weak U.K. economy, political uncertainty and the dovish stance by the Bank of England.

The USD JPY is trading higher. Demand for higher risk assets is pressuring the Japanese Yen. A strong surge in the equity markets today should drive this pair sharply higher. The USD CHF is down. The firming Euro is helping to diminish the possibility of another intervention by the Swiss National Bank. The SNB is expected to leave interest rates unchanged at its next meeting, but reiterate that it stands committed to protecting its export industry in the face of a deterioration of the Euro Region economy.

Oversold conditions seem to be preventing the USD CAD from breaking further despite stronger demand for gold and crude oil this morning. This pair is rapidly approaching a key support area. Traders are approaching the short-side with caution out of fear the Bank of Canada may try to weaken its currency in order to prevent the expensive Loonie from doing damage to its export market.

News that Chinese exports increased the most in three years is helping to increase demand for the AUD USD and NZD USD. The Australian Dollar continues to mount a strong rally after taking out key resistance recently. The strong economy is causing traders to factor in the possibility of another rate hike by the Reserve Bank of Australia at its next meeting.

The good news out of China is also helping to boost the New Zealand Dollar. Although the Reserve Bank of New Zealand is expected to keep interest rates low for a prolonged period of time, traders like the Kiwi at its current level. The overnight action has put the NZD USD in a position to turn the main trend up on the daily chart on a move through .7078. The next 50% upside target is .7124. An additional sign of strength is the breaking of a downtrending Gann angle overnight. This move could help trigger additional short-covering once the New York session is open.

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