Worries about Economy Losing Steam Drives U.S. Dollar Lower

The U.S. Dollar is under pressure against most majors asinvestor concern that the U.S.economy’s recovery is losing steam drove traders into higher yielding assets.The overnight weakness in the Dollar was triggered by a better than expectedeconomic report in Australiaand a strong surge in Asian equities.

The U.S. Dollar is under pressure against most majors asinvestor concern that the U.S.economy’s recovery is losing steam drove traders into higher yielding assets.The overnight weakness in the Dollar was triggered by a better than expectedeconomic report in Australiaand a strong surge in Asian equities.

The Dollar has been under pressure lately because of astring of weak economic data while the Euro Zone economy has been showing signsof strength, driving investors into riskier assets. Another concern at thistime is how long the weaker U.S.economy will continue to drive investors into the higher yielding currencies.At some point, global investors will turn their focus once again to the Dollarbecause of risk aversion worries.

The AUD USD rose to its strongest level in three months onsigns that Asian economic growth continues to remain strong despite predictionsof a slow down in China.Australian traders turned bullish after the manufacturing index in Australia rose1.5 points to 54.4. Speculative traders are also looking for tomorrow’sAustralian retail sales and building approvals to show advances for June.

On August 3, the Reserve Bank of Australia is expected to leaveinterest rates unchanged for the third straight month. Traders will be watching the policy statementfor any signs that the RBA will resume its tightening campaign later in theyear. The central bank may have to take action against a possible spike ininflation due to projected strength in the economy for late 2010 and early2011.

Technically the Aussie continues in an uptrend. The drivethrough the last swing top at .9068 was reaffirmed overnight. A new higherswing bottom was formed at .8904. Continue to look for the trend to continue aslong as there are higher-tops and higher-bottoms.

Although China’sPurchasing Managers’ Index was down in July versus June, the reading remainedabove 50 showing expansion. New Zealand Dollar traders read this a sign thatdemand for goods and services will remain strong. The NZD followed through tothe upside after Friday’s minor reversal bottom. Strong upside momentumindicates the market may have enough juice to challenge the last main top at.7395. The main trend remains up with a strong chance a new higher swing bottomwill form at .7190.

The British Pound is the strongest gainer overnight. Tradersare buying the Sterlingahead of this week’s Bank of England interest rate decision. Most investorsexpect the central bank to leave interest rates unchanged but the key focuswill be on the BoE’s outlook for inflation. The new inflation outlook will bethe central banks first since the government implemented financial austeritymeasures. The BoE is expected to give its assessment on the effects of thefinancial austerity measures on monetary policy and economic growth goingforward.

Technically, now that the British Pound has cleared a key50% retracement level, upside momentum is expected to drive the market to the.618 retracement level at 1.5967 before encountering new resistance. Continueto look for higher markets as long as 1.5635 holds as support. The strong risein the Sterlinghas this market in a position to post a daily closing price reversal top.Bearish traders should watch for this formation to form on either an intra-dayor daily basis.

Demand for higher risk assets is driving the USD JPY higherafter this currency pair reached a new low for the year on Friday. The strongrise in the equities has reignited interest in the carry-trade, fueling asell-off in the Japanese Yen.

This week the Australian Central Bank meets on August 3,followed by the European Central Bank and the Bank of England on August 5. Allthree central banks are expected to leave interest rates unchanged. Followingthe release of their respective policy statements, traders will turn theirfocus toward the release of the July U.S. Non-Farm Payrolls Report.

This report will be important because Dollar sellers willhave to decide whether to keep the pressure on the Greenback because of a weakeconomy or begin to cover their shorts because of risk aversion.

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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