Renewed Demand for Risk Pressures Dollar

The U.S. Dollar is trading lower against most major currencies as trader demand for risk is helping to pressure the Greenback.

The U.S. Dollar is trading lower against most major currencies as trader demand for risk is helping to pressure the Greenback. The weakness in the Dollar is being attributed to optimism in the Euro Zone over the potential positive impact of the new European Union and International Monetary Fund bailout proposal for Greece. Before the New York session opening, the theme of the day is demand for risk.

The EUR USD is up for the second consecutive day as weak shorts continue to cover after late last week’s EU and IMF proposal to help Greece should it be unable to find financing in the capital markets. The proposal amounts to a pledge to help Greece out of the Euro Region’s biggest deficit if it runs out of traditional financing options. Today, Greece is expected to issue bonds priced in Euros. This will be the first test as to how investors perceive the viability of the aforementioned bailout proposal.

The charts indicate the Euro has formed a new main range at 1.3817 to 1.3267. This range creates an upside target at the retracement zone at 1.3542 to 1.3607. According to the CFTC Commitment of Traders Report, as of March 23rd, hedge funds and large speculators account for a record net short 74,917 positions. The large number of shorts, the news regarding Greece and the chart formation all suggest that this market is ripe for a short-covering rally. Fresh buyers are likely to remain scarce until the Greek economy can prove itself.

The stronger Euro is pressuring the USD CHF. The higher the Euro rises, the less likely the Swiss National Bank is going to intervene to protect its economy and currency. A better Euro will also allow the SNB to focus on the possibility of an interest rate hike at its next meeting. The charts indicate that a new lower top has been formed at 1.0751. Overnight a minor retracement level at 1.0628 to 1.0600 has been tested. A break under 1.0600 is likely to trigger an acceleration to the downside with 1.0513 the next likely target.

Demand for riskier currencies is helping to boost the GBP USD. This currency pair is still in a downtrend, but beginning to show signs of the formation of a secondary higher bottom at 1.4797. Regaining a key retracement area at 1.5010 to 1.5080 could trigger additional short-covering, but the trend will remain down until 1.5381 is violated. Fundamentally, although the British Pound is up because of expectations of improvements in Greece, the U.K. continues to face fiscal problems of its own. The wide deficit as well as the possibility of a debt rating cut, continue to weigh on the currency. Uncertainty regarding the upcoming election and the possibility of a “hung Parliament” continues to linger.

Signs that the global recovery is gathering momentum could continue to underpin the USD JPY. Although this market is technically overbought after last week’s surge to the upside, buying could resume today if U.S. equity markets continue to push higher. Additional pressure could be on the Yen following strong rallies in gold and crude oil. The charts indicate that the January top at 93.77 remains the next likely upside target. 91.35 should provide good support if tested.

Greater demand for higher risk assets helped stop the USD CAD rally in its tracks. The long-term downtrend could resume as traders begin to price in the strong possibility of an interest rate hike by the Bank of Canada. Speculators are also anticipating a better U.S. Non-Farm Payrolls Report on Friday. The charts indicate a test of 1.0181 to 1.0152 is likely should downside momentum continue.

Expectations of better retail sales this week and talk of another interest rate hike are helping to boost the AUD USD. The overnight action is indicating that demand for higher yielding assets has returned.

Reserve Bank of Australia Governor Stevens said house prices are “getting quite high”. This signaled to traders that interest rates may need to be increased further. Stevens also said that borrowing costs need to be returned to “normal” levels. Both of these comments are encouraging traders to by the Aussie. The strong move in the currency has put this market in a position to test a retracement zone at .9126 to .9155.

Renewed buying in higher risk assets is also giving the NZD USD a boost. The higher-top, higher-bottom formation suggests that the main trend is likely to continue up. Regaining a 50% price level at .7124 could trigger an acceleration to the .618 level at .7199. A break out over the last swing top at .7178 will reaffirm the uptrend. There is also some speculation that the Reserve Bank of New Zealand may raise interest rates as early as June.

Today, traders will be given the chance to respond to U.S. Personal Income and Spending. Estimates are for these reports to be steady. The market mover this week will be Friday’s U.S. Non-Farm Payrolls Report. Early expectations are for an increase of 190,000 jobs, mostly due to the hiring of census workers. Traders will be able to get an early indication of the viability of this number on Wednesday when ADP reports private jobs data.

Given the absence of any major economic reports until Friday, look for traders and speculators to continue to focus on Greece and the other sovereign debt issues lingering in the Euro Zone economy.

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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