Better U.S. Economic Outlook Pressures Dollar as Traders Move toward Riskier Assets

The U.S. Dollar opened down and remained lower against most major Forex markets as traders seemed to reassess Friday’s employment report while brushing aside today’s jump in ISM Non-Manufacturing and the unexpected surge in pending home sales.

The U.S. Dollar opened down and remained lower against most major Forex markets as traders seemed to reassess Friday’s employment report while brushing aside today’s jump in ISM Non-Manufacturing and the unexpected surge in pending home sales. Instead of supporting the Dollar because of its traditional relationship with the economy, investors instead took interest in stocks and Dollar-denominated commodities.

Some traders blamed the Treasury’s decision to postpone a ruling on whether China manipulates its currency for the weakness in the Dollar. They felt that the move was designed to defuse political tensions enough for the Chinese government to allow the Yuan to strengthen.

The Dollar seemed to hold its ground versus the Euro. At the close the EUR USD finished lower. The strength in the U.S. economy was enough to weaken the Euro substantially along with the developing lack of confidence in the Greek financial bailout proposal. Traders may also be reluctant to take a position in the Euro ahead of Wednesday’s European Central Bank meeting. The consensus believes the ECB will leave interest rates unchanged and hint that rates will remain low until the Euro Zone recovery is sustainable.

The GBP USD closed better, but still had trouble with a key 50% level at 1.5297. Although recent reports have shown that the U.K. economy is growing, doubt continues to linger about the outcome of the election and the potential hung parliament that could hamper the country’s effort to reduce its budge deficit.

The USD CHF traded in a tight range as traders await direction from the Euro. Traders are leaning a bit to the upside in anticipation of another intervention by the Swiss National Bank should the Euro weaken. Trading could be tight until Wednesday when the ECB announces its monetary policy decision.

Early Sunday night, the USD JPY surged to its highest level since August 2009. Overbought conditions and position squaring ahead of Tuesday’s Bank of Japan meeting helped form a daily closing price reversal top. This formation could trigger a 50% correction of the last swing or a two to three day correction.

Stronger gold and crude oil put pressure on the USD CAD. Strong commodity prices and the outlook for a better economy helped to drive this pair toward parity. Traders also priced in the strong possibility the Bank of Canada will raise interest rates before the Federal Reserve. Foreign money is flowing into the Canadian economy because of the strong natural resource market and the sound banking system.

The AUD USD closed higher on light volume and low volatility. Traders are awaiting the Reserve Bank of Australia’s interest rate decision on Tuesday. Expectations are for a hike of 25 basis points. 50bp will be bullish, unchanged will be bearish. If the market gets 25, then the language in the statement will move the markets. The biggest factor that could influence this currency over the near-term will be whether China begins to allow the Yuan to appreciate.

The New Zealand Dollar was under pressure because of last week’s International Monetary Fund report calling the currency overvalued. Traders also fear the high priced currency will hurt export sales and thus the chance of an interest rate hike by the Reserve Bank of New Zealand.

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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