Euro Stabilizing; Dollar Pressured by Demand for Risk

The U.S. Dollar Index is trying to hold on to gains butdemand for higher risk assets due to the announcement of new austerity measuresin Spain is making it difficult. Technically, the charts are indicating thepossible development of a distributive top.

The U.S. Dollar Index is trying to hold on to gains butdemand for higher risk assets due to the announcement of new austerity measuresin Spain is making it difficult. Technically, the charts are indicating thepossible development of a distributive top.

The EUR USD is trading slightly better but the good news forthe bulls is that downside momentum is slowing down. It seems traders arestarting to accept the fact that new money is coming into Greece, Portugaland Spainwhich is helping to shore up short-term liquidity problems. Furthermore, thenews that Spainis taking a proactive approach to contain its budge is being seen as apositive.

Overnight European Central Bank President Jean-ClaudeTrichet helped stabilize the Euro overnight by stating “I am more confidentthan ever in the future of the Euro.” He did issue a warning however, “We haveto strengthen oversight of budgetary policies adopted by this and thatcountry”. His statements were hardly earth shattering, but nonetheless kept newshort-sellers at bay. When pressed with the question about the ECB losing itsindependence, Trichet issued his strongest response, “We haven’t just startedprinting money”.

Short-term, the charts indicate the Euro is due for atechnical bounce to the upside, but longer-term the Euro still remains in thestrong hands of the short-sellers.

The GBP USD is expected to advance after it was reportedthat an agreement to create a new government had been reached. Traders arecelebrating the news that the Conservative party and the Liberal Democrats haveformed a coalition to create a majority in the Parliament. The move by bothparties helped to put an end to the long-standing rule of Prime Minister GordonBrown and the Labour Party.

The formation of a new government is seen as a positive forthe British Pound at this time because it provides clarity to an almost diresituation. For weeks the Sterlinghas succumbed to selling pressure due to the possibility of a hung parliament.This situation would have created a problem because it would have made itvirtually impossible for the new government to enact the austere fiscalmeasures needed to balance the budget and reduce the country’s debt.

The clarity provided by the “new coalition” between theConservatives and the Liberal Democrats comes at an important time because ofthe events taking place in the Euro Zone. The formation of a new governmentwill help to provide the psychological boost the British Pound needs to reversethe current down trend.

Stronger demand for commodities and stocks this morning arehelping to encourage buying in the commodity linked-currencies. Higher crudeoil, gold and stocks are underpinning the AUD USD and NZD USD while pressuringthe USD CAD. The early strength in the U.S. equitymarkets is helping to drive the USD JPY higher.

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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