Dollar Up Against Europe, Pares Loss versus Commodity-Linked Currencies

The Euro and British Pound are tradinglower at the mid-session after earlier gains were reversed. Earlier advances inthe commodity-linked currencies were also being reduced by the mid-session.

The Euro and British Pound are tradinglower at the mid-session after earlier gains were reversed. Earlier advances inthe commodity-linked currencies were also being reduced by the mid-session.

Late Sunday night China made anannouncement that indicated it would allow the Yuan to appreciate. This newsinitially weakened the U.S. Dollar across the board, sending the Dollar Indexsharply lower. The move by Chinais seen as a positive for global exporters because it is expected to meangreater demand for global goods and services. Expectations are for the Pacific Rim currencies to see the most appreciation whilelower-yielding currencies are expected to take a hit.

After a surge overnight, sellers hit theEuro and British Pound shortly before the New Yorkopening as investors pondered over the news from China. Fundamentally, the recentrise in these two currencies has been driven by the relaxing of tensions in theEuro Zone. Today’s break is most likely traders shifting money out of Europeand into the Pacific Rim currencies which are likely to see greaterappreciation if demand from China for their raw materials increases.

Technically, both the British Pound andEuro are in positions to post daily closing price reversals. This patternsuggests the start of a 50% correction of the recent rally as well as a minimum2 to 3 day break.

Commodity-linked currencies – AustralianDollar, New Zealand Dollar and Canadian Dollar are expected to be underpinnedby the news from Chinabut traders may not want to chase these markets higher. This means they arestill vulnerable to near-term corrections. The AUD USD is currently tradinginside of a retracement zone bordered by .8727 and .8883. The direction of the market will bedetermined by how the market reacts at each of these levels. In other words,continued strength over .8883 and weakness under .8727.

The Japanese Yen is going to be sensitiveto demand for higher-risk assets and is likely to become the keycarry-currency. This means rallies in stocks and commodities are likely togenerate more borrowing from Japanese banks. This should pressure the Yen when traders take this borrowed money outof Japanto put to use in global equity and commodity markets.

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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