U.S. Dollar falls Against All Major Currencies on Stronger Economic Reports

The U.S. Dollar declined against all the major currencies onTuesday after economic reports showed U.S. retail sales and businessinventories rose more than analyst expectations.

The U.S. Dollar declined against all the major currencies onTuesday after economic reports showed U.S. retail sales and businessinventories rose more than analyst expectations.

The friendly data helped ease investor concerns about theoutlook for the global economy, making them more willing to buy riskier assets.Increased appetite for risk drove up demand for stocks and commodities whileencouraging the liquidation of assets considered safer, such as the U.S.Dollar.

Traders bought the Euro after the friendly report wasreleased. The EUR USD rallied sharply higher for the second day in a rowfollowing a slight setback overnight. Now that the daily chart has reaffirmed its uptrend, momentum is likelyto carry this pair into a Fibonacci/Gann angle price cluster at 1.3049.

Early in the session the Euro was trading lower, giving backsome of yesterday’s gains after it was reported that the ZEW indicator ofGerman economic sentiment fell sharply in September to -4.3 from 14 in August.Pre-report economist guesses were for a drop in the index to 9.0.

Despite the overnight weakness, the main uptrend neverappeared to be threatened. Traders were basically using the report to pare positionsahead of today’s U.S.retail sales number after yesterday’s sharp move to the upside. Although thereport showed economic sentiment had dropped more than expected, the oddsremain low that Europe will experience adouble-dip recession. The strong rise in the Euro at the Dollar’s expensesuggests that investors believe that the European economy will recover fasterthan the U.S.economy.

Pressure continued to mount on the USD JPY even aftercurrent Prime Minister Kan was retained by voters after today’selection. The decision to continue to support the Japanese Yen is a sign thatinvestors are not confident the government or the Bank of Japan’s intent tointervene is not being taken seriously. Furthermore,investors also feel that an intervention may not be successful now because itrequires the cooperation of other central banks which may not be very helpfulat this time due to their dealing with economic issues of their own.

Technically, at a minimum, this market is going to have toproduce a daily closing price reversal bottom to get the ball rolling to theupside. The best sign of a bottom, however, will be the formation of a weeklyreversal, but we won’t know it has formed until later in the week.

The GBP USD finally broke through the downtrending Gannangle which had held this market down since the 1.5997 top formed on August 6.This angle came in on Tuesday at 1.5457. The sharp acceleration to the upsidetook out stops and attracted fresh buying. The current chart formation andupside momentum indicates that this market is likely to rally over theshort-run into a retracement zone at 1.5647 to 1.5729.

Continue to look for the Dollar to weaken as long as thereis demand for higher risk assets. In addition, traders must monitor U.S.economic reports. At this time it seems, investors are selling the Dollar ongood U.S.economic news but at some point in the future this way of thinking is going toshift. Based on the rally in the T-Bond market, it looks as if investors stillexpect lower yields, which translates into a weaker outlook for the economy.The Dollar is likely to continue to weaken against the Euro as long asinvestors believe that the Euro Zone economy is on a faster path to recoverythan the U.S.economy.

Watch the stockmarket and the Euro as to whether this demand is waning. The problem with themarkets lately has been the lack of follow-through and the tendency to takesmall, quick profits. Coupled with high volatility, this could lead to wildswings.

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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