U.S. Dollar weakens as Investors put Risk Back on the Table

The U.S. Dollar finished the day down against most majorcurrencies with the exception of the Japanese Yen. Low volume ahead of Friday’sU.S. Employment report may have contributed to the weakness in the Dollar astraders threw their support into the higher-risk, commodity-linked currenciesafter the thinly traded equity markets posted strong gains.

The U.S. Dollar finished the day down against most majorcurrencies with the exception of the Japanese Yen. Low volume ahead of Friday’sU.S. Employment report may have contributed to the weakness in the Dollar astraders threw their support into the higher-risk, commodity-linked currenciesafter the thinly traded equity markets posted strong gains.

The EUR USD traded higher but inside of Tuesday’s range.This pattern indicates impending volatility. The lack of fresh news today helpedto hold the market steady. A late session surge in U.S. equity markets helped turn theEuro positive shortly before the close.

Lately the news coming out of the Euro Zone hasn’t beenencouraging for the bulls but hasn’t offered any surprises for the bearseither. Look for an acceleration to the downside if bottom at 1.2110 fails tohold. Watch for a change in trend if the market can muster enough momentum totake out the last swing top at 1.2453. Volatility is expected to come back intothe market in a big way so be prepared for unexpected news.

The strong rise in crude oil and U.S. equities put pressure on theUSD CAD all session. Volatility is much higher today compared with Tuesday whenthe market barely reacted to the news of an interest rate hike by the Bank ofCanada.

Wednesday’s break took out two key levels at 1.0481 and1.0394 while changing the trend to down on the move through the last swingbottom at 1.0413. Signs that the globalrecovery may be back on track are likely to continue to strengthen demand forhigher risk assets, especially crude oil. Losses may be limited by the newsthat the BoC is not likely to hike interest rates in July due to unstableconditions in the global economy.

The GBP USD posted a strong gain overnight to continue itsmove toward a major 50% price level at 1.4810 but buying dried up as theeuphoria from the collapse of the Prudential/AIG deal wore off. Tuesday’s surgeafter the deal was cancelled was attributed to the short-covering of hedgesplaced by Prudential. Once they were done covering, no one was left to buy. Alower close today will form a daily closing price reversal top. This patternusually sets up a 2 to 3 day break with the first objective 50% of the firstleg up. The charts suggest a pull-back to at least 1.4499 or perhaps 1.4435 islikely during the 2 to 3 day time frame.

The USD CHF closed lower, and like the Euro had an insideday formation, indicating impending volatility. If the Euro rallies, then lookfor the Dollar/Swiss to take out the last swing bottom at 1.1469. A movethrough this price will turn the main trend down and could trigger a correctionback to 1.1309 to 1.1218.

The USD JPY soared on Wednesday, buoyed by greater demandfor risky assets and on speculation that the next prime minister will favor aweaker currency.

The Japanese Yen began to weaken overnight following theresignation of Japanese Prime Minister Yukio Hatoyama. Traders are worried that the economy willweaken further during the election process at a time when China’s economy is slowing and Europecontinues to struggle. In addition, speculators sold the currency because theybelieve the next prime minister will be Naoto Kan who favors a weaker currency.Firm U.S.equity markets also contributed to the weakness in the Japanese Yen.

After piercing a key 50% retracement level at 91.61overnight, the USD JPY was able to establish support at this level, setting upa further rally to the Fibonacci retracement level at 92.41. A trade over this price could trigger anacceleration to the upside.

The AUD USD rallied sharply higher after once again findingsupport at a key 50% price level at .8308. The catalyst behind Wednesday’srally was the strength in the U.S.equity markets and the better than expected U.S. Home Sales Report whichindicated the global economy may be back on track.

Thin trading conditions contributed to the strength in the U.S. equitymarkets which means that this rally may be short-lived. Many of the largertraders and institutions are standing on the sidelines ahead of Friday’sNon-Farm Payrolls report. Today’s rally is likely just position squaring andrisk paring ahead of the report. Weakness will develop if selling hits theequities again and the Aussie can’t hold the retracement level at .8251. On theupside, momentum and short-covering could drive this market to .8550 over thenear-term.

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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