Greece Worries and Fed Minutes Boost U.S. Dollar

The U.S. Dollar finished higher against most major currencies on Tuesday, boosted by renewed trouble in Greece and comments from the minutes of the Fed’s last meeting.

The U.S. Dollar finished higher against most major currencies on Tuesday, boosted by renewed trouble in Greece and comments from the minutes of the Fed’s last meeting.

Greece’s problems began to resurface overnight as the troubled country was reportedly asking for more favorable interest rates on loans from the European Union and to amend certain parts of the bailout proposal from the International Fund.

The spread between Greek Bonds and German Bunds has been widening, indicating that investors are asking for more protection in case of a default by Greece. The high price to service the debt is raising concerns about Greece’s ability to finance its debt.

The Dollar received a late session boost following the release of the minutes from the last Fed Open Market Committee meeting. Investors were reacting to the debate by the Fed members over the use of the term “extended period” which has been used in several of the recent Fed policy statements.

The term “extended period” is difficult to translate into a specific time period because of its ambiguity. The central banks of Canada and New Zealand have been more specific with their forecasts as to when rates will most likely rise in these two countries while the U.S. Fed remains unclear. Analysts have been looking for the Fed to clarify this statement to remove some of the speculation from the markets. Based on comments in the minutes, many analysts now believe the Fed will remove “extended period” from its next statement on April 28th.

In addition to discussions about the use of terms, the Fed also reduced its forecast for economic growth and inflation.

On Tuesday, the Canadian Dollar reached parity with the U.S. Dollar for the first time since July 2008. The strong Canadian economy and banking system continued to attract global investors into the Canadian Dollar. Firm crude oil and gold helped to weaken the Dollar/CAD today. Strong demand for these Canadian resources should continue to help the economy grow. The charts indicate that although parity with the U.S. Dollar is the first objective of this move, downside momentum may not stop at this level.

The AUD USD closed higher after the Reserve Bank of Australia raised its benchmark interest rate by 25 basis points to 4.25 early Tuesday morning. This action came as no surprise but hawkish comments following the rate hike helped this market surge to the upside. In its policy statement, RBA Governor Stevens said further hikes are likely despite fears that they will erode consumer spending. This currency pair took out the last swing top at .9251, reaffirming the uptrend and set the tone for the rally to continue to the high from the year at .9329.

The main trend on the NZD USD chart turned down early Tuesday, but a late session short-covering rally turned the market around to trigger a closing price reversal bottom. Last week’s IMF report calling the currency overpriced has been putting pressure on this market for almost a week. Traders are concerned that the high price New Zealand currency will hurt the export market and keep the economy from growing.

Additional selling pressure came from the strong rise in the Aussie Dollar. Tuesday’s New Zealand business sentiment report showed an improvement in optimism. Despite the sell-off, some traders still believe the Reserve Bank of New Zealand is on path to raise interest rates in June. This, along with oversold conditions and the lack of sellers most likely triggered the strong short-covering rally into the close.

The Euro was under pressure because of renewed fears that Greece may not be able to fulfill its debt obligations. Greece is reportedly asking for more favorable loan terms from the Euro Zone nations which have previously pledged support. In addition, stories are circulating that Greece may try to amend its agreement with the International Monetary Fund. The widening of the spread between Greek Bonds and German Bunds indicates that traders are taking protection once again against a default by Greece.

After three attempts to break out through a major 50% level at 1.5297, the British Pound finally succumbed to selling pressure overnight and now appears to be on a path to retrace to at least 1.5058 before attracting potential buyers. The main trend remains down, but it is possible that the British Pound is building a huge support base before its next rally. The recent release of the 4Q GDP results show that the economy is improving, but concerns continue to linger regarding the U.K.’s exposure to the Greek fiscal problems as well as political uncertainty.

The Dollar/Yen traded lower following Monday’s closing price reversal top. Japanese investors may begin bringing funds home because of risk aversion. A weaker stock market could trigger a surge in the Japanese Yen. The chart pattern suggests the start of a 2 to 3 day break or a 50% correction back to 92.26. The latter scenario will likely take place if there is a huge sell-off in U.S. equities.

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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