Turnaround in Equity Markets Pressure U.S. Dollar

A turnaround in U.S. equity market pressured the Dollar on Monday as traders sought risk in higher yielding assets. Overnight, the Dollar traded weaker, driven down mostly by traders taking protection in the lower yielding Dollar and Japanese Yen

A turnaround in U.S. equity market pressured the Dollar on Monday as traders sought risk in higher yielding assets. Overnight, the Dollar traded weaker, driven down mostly by traders taking protection in the lower yielding Dollar and Japanese Yen

The Dollar erased earlier gains and was under pressure most of the New York trading session after U.S. equity markets rallied as Wall Street celebrated the passing of the health care reform bill. The inability to follow-through to the downside in the equity markets and the subsequent rally encouraged traders to dump the Dollar in favor of more risk.

Other factors affecting the Dollar on Monday were concerns over the Greek financial situation and an interest rate hike by India late last week. Traders initially pressed the Euro lower on expectations the European Union will fail to agree on an aid package for Greece. The Reserve Bank of India unexpectedly raised borrowing costs on March 19th. This helped support the Dollar as investors boosted demand for safe investments. Traders fear that the hike in India means that China will soon do the same.

The GBP USD finished higher as traders refocused their interest on the long side. Earlier in the session, the British Pound traded weaker on the heels of the news that the Confederation of British Industry sees a “bumpy” road ahead for the U.K. economy. Political uncertainty and the possibility of a “hung Parliament” continue to limit gains.

The stronger Euro helped drive down the USD CHF. Monday’s upside action in the Euro diminished the possibility the Swiss National Bank will intervene to protect the currency and Swiss economy. Talk that the SNB may begin raising rates is helping to limit gains.

The USD JPY closed lower despite greater demand for higher risk assets. This market remains rangebound as traders don’t seem confident in either direction at this time. A stronger U.S. equity market should put pressure on the Japanese Yen because it has regained its status as the carry currency of choice.

The USD CAD finished up after confirming last Friday’s closing price reversal bottom at 1.0060. Oversold conditions and the current chart formation suggest the possibility of a 2 to 3 day retracement. Fundamentally, the Canadian Dollar is strong. The improving economy and higher commodity prices have been supportive. The current counter-trend rally can be attributed to oversold conditions and the lack of fresh sellers.

The turnaround in higher yielding assets is helped to support the AUD USD while driving the NZD USD off its low. Short-covering and a pick-up in demand for higher yielding assets are helping both of these markets today. Oversold conditions and uncertainty regarding the future of Chinese interest rates is helping to limit gains. Investors feel that following the rate hike in India, China will follow suit. This could curtail Chinese demand for Australian and New Zealand raw materials and finished products.

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

Disclainer: