Investors Shying Away from U.S. Dollar in Wake of Economic Concerns

The U.S. Dollar is under pressure overnight as traders throwtheir support into the Yen, Euro, Swiss Franc and the commodity-linkedcurrencies. On-going concerns over a slowdown in global growth continue to bethe main catalyst behind the selling pressure.

The U.S. Dollar is under pressure overnight as traders throwtheir support into the Yen, Euro, Swiss Franc and the commodity-linkedcurrencies. On-going concerns over a slowdown in global growth continue to bethe main catalyst behind the selling pressure.

With the Dollar giving back some of its gains from lastweek, investors are beginning to question if the current weakness is the startof another leg down or simply a retracement of last week’s rally. Traders seemto be a little confused as to which route to take today. On one hand, therallies in the Japanese Yen and Swiss Franc suggest investors are seekingshelter in lower yielding currencies. On the other hand, the rallies in the AustralianDollar, New Zealand Dollar and Canadian Dollar indicate there is still appetitefor risk.

Volatility is likely to increase over the near term astraders will eventually have to decide whether risk is on or risk is off.

The USD JPY is trading flat to lower shortly before the New York sessionopening. The inability to follow-through to the upside after last week’s weeklyclosing price reversal bottom has all but taken the chance of an interventionoff the table.

Technically, the USD JPY still has a chance to begin anotherattempt to breakout to the upside however. The overnight weakness has created anew swing top at 86.37 which means a breakout over this level will turn themain trend to up on the daily chart.

Based on the short-term range of 84.73 to 86.37, the markethas to begin establishing support at the 50%/62% retracement zone at 85.55 to85.36 or selling pressure will overcome the buying and this pair will test orexceed the previous swing bottom at 84.73.

Although the overnight price action penetrated the low endof this zone, a close over either 85.36 or even better 85.55 will be a strongindication that new buyers may have stepped up. This would put the market in aposition to post a possible secondary higher bottom.

On Monday the Euro posted a daily closing price reversalbottom at 1.2732. Last night this reversal bottom was confirmed, setting up thepossibility of a short-covering rally to 1.3033 to 1.3104.

Often after a hard sell-off from a major top, the market hasa snapback rally to set up a secondary lower top. This occurs because the firstbreak is usually dominated by longs bailing out. So another rally is needed togive traders an opportunity to put on fresh shorts. A rally back to 1.3033 to1.3104 will give investors an opportunity to do so.

If this rally fails to materialize, then look for thedowntrend to resume with an objective of the major retracement zone at 1.2605to 1.2433.

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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