U.S. Dollar Suffers Huge Losses

The U.S. Dollar suffered huge losses against most majorcurrencies following overnight news regarding a strengthening global economyand weaker U.S.business conditions in July. FedChairman Bernanke added to the bearishness by painting a gloomier forecast forthe economy.

The U.S. Dollar suffered huge losses against most majorcurrencies following overnight news regarding a strengthening global economyand weaker U.S.business conditions in July. FedChairman Bernanke added to the bearishness by painting a gloomier forecast forthe economy.

Strength in the global manufacturing sector gave investorslittle reason to lock up lower yields, driving investors into higher yieldingassets. The report also forced investors to question the strength of the U.S. recovery.

The key question remains, how long will investors continueto seek risk? At some point, like they have in the past, investors will turnrisk averse, seeking protection in the lower yielding Dollar and Yen. With theU.S. Non-Farm Payrolls Report due on Friday, the current break in the Dollarmay be investors piling on for an exhaustive break which may come to ascreeching halt if the U.S.jobs number comes out weaker than expected. Right now the break in the Dollarappears to be too easy with no big stopper in the way.

The Euro surged to the upside as investors had little choicebut to buy the European currency following strong PMI reports from across Europe. All of the news seems to be centering ondeveloping strength in Europe and continued weakness in the U.S. Technicallythe Euro is on pace to test the late April main top at 1.3342.

The British Pound posted a huge gain ahead of the Bank ofEngland policy meeting on August 5. Interest rates are expected to remain athistorically low levels, but the BoE will have its first chance to address theeconomy since the implementation of new austerity measures. The primary concernfor the central bank at this time will be whether the austerity measures andthe upcoming tax increases will have a negative effect on the economy. The BoEalso has to address its current monetary policy in the wake of the recentstrength in the Second Quarter GDP and inflation.

The main trend is up in the British Pound. The next upsideobjective is the .618 retracement level at 1.5967. Traders should be aware thatthe type of chart pattern taking place often ends in a closing price reversaltop.

Fed Chairman Bernanke did not help matters much for theDollar on Monday as he reiterated his weak assessment for the economyparticularly labor and the housing market.

The size of the current rally in the currencies has takensome traders by surprise. Only two months ago, there were forecasts calling fora weak European economy because of sovereign debt issues and new financialausterity measures. In addition, the possibility of debt defaults threatenedthe very existence of the Euro. Many investors believed that Europewould slash itself back into a recession. This has not been the case however,as business and consumer confidence is up as well as manufacturing. It looks asif the whole Euro region has rallied around the ECB’s decision to shore upfinances and provide aid when needed.

While the Dollar continues to get punished in moves wehaven’t seen since late 2009, traders should be aware that the type ofpunishment the Greenback is enduring may come to a fast halt if the U.S. employmentreport on Friday reveals a ray of light for the economy. Investors should alsobe aware that a weaker than expected report may be the trigger that sendstraders back to the safety of the Dollar. Either way it looks as if the Dollaris approaching a level which could produce a rapid turnaround. Technically,oversold conditions could limit short-selling. Fundamentally, a weakening U.S. economymay curtail the global recovery.

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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