U.S. Dollar weakens after Euro Breaks Technical Level

The U.S. Dollar is trading lower overnight against all major currencies. Investor demand for higher risk assets has been the driving force along with short-covering.

The U.S. Dollar is trading lower overnight against all major currencies. Investor demand for higher risk assets has been the driving force along with short-covering. Economic releases have played a limited role in this week’s Dollar movement. However, this may change today following the release of the U.S. Retail Sales Report and Consumer Sentiment.

The EUR USD is trading sharply higher after piercing the recent swing top at 1.3735. This reaffirmed the main trend which turned up last week. The support base that has been built is bullish. The current chart formation suggests the possibility of a near-term retracement to 1.4009.

Two factors are currently driving this market higher. The first is the persistent rumor of Greek financial aid being delivered by Germany and France. This story began two weeks ago when the Wall Street Journal reported a deal was in the works to provide Greece with as much as $41 billion in aid. The speculated amount has since grown to $55 million.

The second factor currently driving the Euro higher and likely to continue is the fact that there are still over 65,000 net short positions in the market according to the recent CFTC Commitment of Traders Report. The easing of the fiscal crisis in Greece and the inability of the Euro to break further means that the shorts are going to have to cover. If they all head to the exit at the same time, then there could be enough short-covering to drive this market up to 1.4009 rather quickly.

The GBP USD is trading higher this morning after a week of consolidation. The high light this week was the release of a report on Thursday stating that year-long inflation is expected to be a little higher. This helped freeze the selling pressure and turn the markets yesterday. In addition, the freezing of political tensions seems to be helping to boost investor confidence. Although the trend is unlikely to turn higher on this next move, there is room for a sizeable short-covering rally.

Despite a pickup in demand for higher yielding assets, the USD JPY is trading slightly lower. Overnight the Japanese Yen weakened after Japanese Prime Minister Hatoyama told parliament the Yen was too strong. They market could see volatility today as traders may drive the USD JPY higher because of increased demand for higher risk assets, or out of fear of a Japanese government intervention.

The release of U.S. Retail Sales for February is going to be the key market driver today. This report is expected to show no change in February after a 0.5% increase in January. Later in the day, consumer confidence business inventories will also be released. A worse than expected retail sales report will send the Dollar higher. A better than expected report may increase demand for higher risk assets.

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