U.S. Dollar Finishes Down against Most Majors; Risk Sentiment Shifting

The U.S. Dollar finished down against most major currencieson Tuesday as appetite for risk shifted toward higher yielding assets. TheGreenback closed lower against the commodity-linked currencies while posting a stronggain versus the British Pound.

The U.S. Dollar finished down against most major currencieson Tuesday as appetite for risk shifted toward higher yielding assets. TheGreenback closed lower against the commodity-linked currencies while posting a stronggain versus the British Pound.

The Euro seemed to stabilize after the European Union tooksteps to prevent sovereign debt issues from spreading and destroying thecurrency. Nervous shorts appeared to beparing back positions which could be a sign of an impending short-coveringrally.

The single-currency briefly pierced the 1.20 area but wasunable to attract fresh selling or trigger sell stops. In addition to the austeritymeasures being proposed by the European Union, the Euro was still findingsupport from comments by Fed Chairman Bernanke on Monday who said the EU hasthe means to stabilize the Euro and enough money to support struggling nations.

The daily chart indicates that the old bottoms at 1.2143 and1.2153 are a wall of resistance. Overcoming these levels could trigger anacceleration to the upside.

The British Pound was under pressure all trading sessionbefore mounting a decent short-covering rally into the close. At this time,this pair is straddling at minor retracement zone at 1.4499 to 1.4435. Holdingthis area could be a sign of developing strength as it would indicate theformation of a secondary higher bottom.

The weakness in the GBP USD was being driven by commentsfrom Fitch ratings who warned that the U.K. must accelerate its austeritymeasures or risk losing investor confidence and its AAA debt rating. Thiswarning was nothing new to traders who none-the-less reacted by selling thePound. The strong comeback late in the session could be a sign that Tuesday’sreaction may have been an overreaction to the Fitch comments.

Risk-linked currencies were strong throughout the tradingsession. The late session surge in the U.S. equity markets triggeredstrong short-covering rallies in the AUD USD, NZD USD and USD CAD.

The Australian Dollar was able to rebound off its lowfollowing a test of the recent bottom at .8067. Regaining a retracement area at.8251 to .8308 is a sign that shorts may pare back positions again tomorrow.Watch for this pair to try to establish support inside this zone.

The main trend is down in the New Zealand Dollar butTuesday’s trading action indicates it may have run out of sellers. The strongreversal to the upside indicates there may be a follow-through rally back to aretracement zone at .6735 to .6774.

The choppy trading action in the USD CAD continued onTuesday on increased appetite for risk. The main trend is up but the marketseems content with hovering around the 50% level of the 1.0110 to 1.0853 rangeat 1.0481. If demand for higher assets continues to increase, then look formore downside pressure on the USD CAD over the near-term.

There seems to be a shift in market sentiment taking placethat is centering on the Euro. With Bernanke supporting the actions by the EuropeanUnion and the EU continuing to develop measures to support the Euro and backthe struggling nations, watch for the start of a short-covering rally. A rallyin the Euro should take some of the pressure off the commodity-linkedcurrencies which have been beaten up lately because of trader aversion to risk.

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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