U.S. Dollar Up Sharply as Investors Shed Risk

The U.S. Dollar is trading sharply higher against most majorcurrencies as investors shed risk, encouraged by the news that China’s LeadingEconomic Index missed pre-report guesses, signaling that growth in the countryis not likely to accelerate.

The U.S. Dollar is trading sharply higher against most majorcurrencies as investors shed risk, encouraged by the news that China’s LeadingEconomic Index missed pre-report guesses, signaling that growth in the countryis not likely to accelerate.

Besides the shedding of higher risk assets, investors arepressuring the Euro because of European bank funding issues and stress testresults. Technically the Euro turned the main trend down on the daily chartwhen it pierced the former main bottom at 1.2209. A 50% level at 1.2171 limitedlosses and triggered some light short-covering. This area is not likely to holdbecause of the record number of shorts in the market. Expectations are for theEUR USD to feel more pressure down to 1.2102.

The projected slowdown in Chinacomes at a time when Germanyis calling for cost cutting and austere financial measures. These measures bythemselves are expected to slow down the Euro Zone economy so expect theeconomic issues in this area to be magnified.

Some say that a cheaper Euro is good because it willeventually allow the Euro Zone to “export” its way out of its economic downturn. This theory will only work ifthere is demand from the rest of the world. A slowdown in demand from China or the U.S. will mean the Euro Zonerecovery will take longer or the Euro will have to get cheaper and extremelyattractive.

The falling equity markets and a bleak outlook for globaleconomic growth are helping to drive down the USD JPY. Traders are dumpinghigher yielding currencies in favor of the lower-yielding Japanese Yen. Inaddition, investors are shedding risky stocks and paying back money borrowedfrom Japanese banks. The overnight weakness has the Dollar/Yen in a position tobreak through the last main bottom at 88.14. This move could trigger anacceleration to the downside and is likely to take place in the event of astock market crash.

Fundamentally the USD CHF is under pressure because of thestrong outlook for the Swiss economy. Apparently new data is showing that thestrong Swiss Franc has had a limited negative effect on the Swiss economy. Thismeans the Swiss National Bank is unlikely to continue to intervene on itscurrencies behalf. Traders bought the Franc on the news.

Technically, the USD CHF is in a downtrend but oversold. Inaddition, it is also finding support at a 50% price level at 1.0804. Watch fora possible technical bounce off this level, but the trend is not likely tochange to up unless 1.1137 is violated. A failure to hold 1.0804 should fueldownside momentum to 1.0592.

The news about China is having a negativeinfluence on the AUD USD. Calls for a slow down in the growth of China’s economyare likely to hurt Australian exports. This is triggering a sharp sell-offovernight.

Based on the short-term range of .8081 to .8858,expectations are for this market to continue to weaken into a retracement zoneat .8469 to .8378.

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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