Weaker Equities could Trigger Flight into U.S. Dollar

The U.S. Dollar is picking up strength this morning astraders shed risky assets. Investors are lightening up positions because of theweaker durable goods data, but the actually selling pressure may have startedlast night following a disappointing Australian Consumer Price Index number.The Aussie CPI rose less than economists had expected, curtailing gains andleading to the possibility the Reserve Central Bank will refrain from hikinginterest rates for the third consecutive month.

The U.S. Dollar is picking up strength this morning astraders shed risky assets. Investors are lightening up positions because of theweaker durable goods data, but the actually selling pressure may have startedlast night following a disappointing Australian Consumer Price Index number.The Aussie CPI rose less than economists had expected, curtailing gains andleading to the possibility the Reserve Central Bank will refrain from hikinginterest rates for the third consecutive month.

Overall, the weak durable goods report sets a bearish tonein the stock market ahead of the opening. This is likely to lead to aprofit-taking break. Investors are taking a defensive position this morning.The shedding of risky assets is likely to benefit the Dollar and Treasurymarkets as traders seek safety in lower yielding assets.

The Euro is still struggling with the .618 retracement levelat 1.2998 and the psychological 1.30 price. Although economic data in Europehas been improving while the U.S.economy weakens, upside momentum seems to be slowing indicating that sentimentmay be shifting toward risk aversion at least in the short-run.

The British Pound is testing a major 50% price level at1.5635 this morning. The main trend is up, but weakening demand for risk andtechnical factors may trigger a profit-taking reaction this morning. Despite anunexpected increase in the U.K. GDP during the second quarter, investors maybecome concerned that the application of spending cuts and higher taxes duringthe second half of the year may lead to a slow down in the economic recovery.These worries could lead investors to trim long positions, thereby pressuringthe Sterling.

Downside momentum in the Japanese Yen has been slowinglately because of demand for higher risk assets and the renewal of the carrytrade, but a sell-off in the equity markets may lead to the start of a anotherround of buying in the Japanese currency. Talk of a possible intervention bythe Bank of Japan also contributed to the sell-off in the Yen.

Technically the Japanese Yen could be forming a dailyreversal top which could lead to the start of a 2 to 3 day break.

The theme developing today appears to favor the Dollar. Theunexpectedly weak durable goods data is encouraging investors to trim riskypositions. This could lead to a flight-to-safety rally in the Dollar.

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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