U.S. Dollar Mixed at the Close; Euro Finishes Higher

The U.S. Dollar was mixed in light trading at the close in an unusual day as the normal correlations between the Dollar, gold and equities at times were not working.

The U.S. Dollar was mixed in light trading at the close in an unusual day as the normal correlations between the Dollar, gold and equities at times were not working. The lack of major U.S. economic reports this week is still influencing the trade although this will change with Thursday’s Weekly Initial Jobs Claims Report.

Early in the session it was clear that traders were looking for risk as the stock indices rose with the March E-mini S&P 500 reaching the high for the year at 1148.00. Strong demand for risk helped to drive up the asset sensitive AUD USD, NZD USD and USD CAD. At the same time, selling pressure was on the lower-yielding Japanese Yen.

The easing of financial tensions in Greece may have helped to give the EUR USD a boost along with better manufacturing news from Italy and France. These events offset a weak exports report from Germany. Trading has been light and choppy this week and is expected to remain this way until enough buying power can come in to pressure the short hedge funds out of the market. The Euro has been building a short-term base since last week when it bottomed at 1.3440 and topped out at 1.3735. The longer it takes to build this base, the stronger the rally will be once it begins to breakout to the upside.

The GBP USD traded weaker, driven lower behind the poor fundamentals. Traders are most concerned at this time about the possibility of a credit rating downgrade by one or more of the credit agencies. Worries over the economic recovery, political uncertainty and the Bank of England’s soft monetary policy should continue to pressure this currency. Traders defended the recent bottom at 1.4780, but at this time it doesn’t look like the main downtrend will be threatened.

The USD JPY was up sharply because of greater demand for higher risk assets. Overnight the Yen felt downside pressure after China announced that both exports and imports grew at a higher-than-expected rate. The short-term picture suggests that a test of a 50% level at 90.95 is likely. A breakout over this price could trigger a further rally to 91.62.

The rising Euro helped to pressure the USD CHF. Traders are looking for the Swiss National Bank to announce on Thursday that interest rates will remain low while offering a more hawkish commentary. The SNB is most concerned about the impact of the falling Euro on its export market which accounts for 50% of the country’s economy. Losses in the USD CHF may have been limited by an intervention by the SNB earlier in the day. The charts indicate that the main trend is still down with the next major downside target set at 1.0513.

Falling gold prices and rising crude oil helped to limit the movement in the USD CAD. The Canadian Dollar started out stronger because of higher equity and commodity markets, but it could not hold its gains after gold and U.S. stock indices began their sell-off. The USD CAD began to mount an intraday turnaround after a slight break of the January low at 1.0224. Oversold conditions and worries that the Bank of Canada may issue a verbal intervention kept shorts from pressing this market further.

The AUD USD gave back all of its earlier gains as U.S. stock market volatility sent investors out of higher risk assets and into safer plays. The weak close suggests that there may be a follow-through break on Thursday, Look for a possible pullback to .9042 before the uptrend resumes.

The NZD USD drifted off its high after demand for risk dried up. The weak close suggests further downside pressure on Thursday is likely. Tomorrow, investors are looking for the Reserve Bank of New Zealand to keep interest rates low while suggesting they are not likely to rise until the economy shows a sustained recovery.

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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