U.S. Dollar Closes Mostly Higher Boosted by Risk Aversion

The U.S. Dollar finished the first full session back fromthe holiday week-end by posting gains against most major currencies. Riskaversion was the theme today as traders punished the Euro and the commoditylinked-currencies while seeking shelter in the Japanese Yen and believe it ornot the British Pound.

The U.S. Dollar finished the first full session back fromthe holiday week-end by posting gains against most major currencies. Riskaversion was the theme today as traders punished the Euro and the commoditylinked-currencies while seeking shelter in the Japanese Yen and believe it ornot the British Pound.

The GBP USD soared 1 percent Tuesday boosted by speculationthat U.K.insurer Prudential may withdraw its takeover bid of AIA. Many traders saw thisas a positive for the British Pound because it eliminated the debt load thatPrudential was expected to take over had the deal gone through.

The bearish action in the Euro also helped the British Poundby driving traders into the relative safety of the U.K. Gilt market. Investorsseem to be feeling a little more optimistic about the U.K. economyand debt obligations now that the new government has taken positive stepstoward cutting the deficit and reducing borrowing. If the current upsidemomentum continues, then look for a possible short-term drive to 1.4810 overthe near-term.

The EUR USD closed down but off its low. Early Monday night,the Euro took out May’s low at 1.2143 but failed to attract fresh sellingpressure. This market was trading lower primarily on the news of theresignation of German President Kohler and on concerns that France may become the latestcountry to face sovereign debt issues or a debt reduction by the creditagencies. Additional selling pressure hit the Euro after the European CentralBank said that many more banks then previously estimated will face bad loanwrite downs.

The inability to attract new shorts and a turnaround in U.S. equity markets helped to encourage amid-day short-covering rally, but these gains were erased when U.S. stockmarkets turned negative into the close. The main trend is down, but the chartpattern suggests that bearish sentiment may be shifting. A trade through 1.2453will turn the main trend to up.

The USD CHF was in a position to post a daily closing pricereversal top after failing to break out to the upside, but this patterndisintegrated into the close when the Euro erased its earlier gains. Look forhigher markets and increased volatility should the Euro fail to hold its recentlows. Traders expect the Swiss National Bank to continue to sell Swiss Francsor buy Euros in an effort to protect its economy.

After testing a major 50% price level at 91.61, the USD JPYtraded weaker, driven lower by greater demand for lower yielding assets. Thehuge sell-off in U.S.equities into the close drove traders into the safety of the Japanese Yen latein the session. This trend is likely to continue if U.S. equity markets continue tosell-off overnight and tomorrow.

Early Tuesday morning the Bank of Canada announced a 25basis point interest rate hike and the market hardly moved. This indicated thatthe main focus of traders at this time is risk aversion. Overnight, lower crudeoil and equity prices helped to drive up demand for the USD CAD. Once equitymarkets settled and rallied, the Canadian Dollar began to make its move. Thisaction failed to attract fresh buyers and the Dollar/CAD was able to closehigher. Traders seem to have priced the rate hike into the market and are nowfocusing on the July meeting. Based on the comments from the BoC after themeeting, the recent turmoil in the global economy is making it highly unlikelythat a second rate hike will take place.

Overnight the Reserve Bank of Australia announced that it wouldleave interest rates unchanged. This was a sign that it is concerned that aslowdown in the global economic market would pressure the Australian economy.In addition earlier weakness in the global equity markets helped drive downdemand for higher yielding currencies. Lower U.S.equity markets means the Aussie is likely to continue to take heat.

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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