U.S. Dollar Pares Losses; Posting Gains versus Swissy, Loonie and Kiwi

The U.S. Dollar is paring its earlier losses against the major currencies at the mid-session while posting gains versus the Swiss Franc, Canadian Dollar and New Zealand Dollar.

The Greenback was under pressure most of the session, pushing the Euro to its highest level since February 2010 and the Japanese Yen to its strongest level since April 1995.

The U.S. Dollar is paring its earlier losses against the major currencies at the mid-session while posting gains versus the Swiss Franc, Canadian Dollar and New Zealand Dollar.

The Greenback was under pressure most of the session, pushing the Euro to its highest level since February 2010 and the Japanese Yen to its strongest level since April 1995.

This morning the European Central Bank left its benchmark interest rate unchanged at 1% sending the EUR USD higher, but the single-currency backed off after touching 1.4028 as buyers disappeared.

European Central Bank President Jean-Claude Trichet may have contributed to the start of the decline when he said the central bank has not changed its view on being in exit mode from the easy monetary policy steps it took during the credit crisis.

Trichet did not identify any specific action the ECB would take to end these emergency measures so his comments weren’t taken as bearish, but long investors used them as an excuse to pare positions ahead of Friday’s U.S. Non-Farm Payrolls Report.

Today’s ECB statement reaffirms that the central bank stands in contrast to the U.S. Federal Reserve, which is still seeking ways to stimulate the economy through the use of quantitative easing. The Fed’s flooding the economy with cash, which is expected to take place as early as next month, is the catalyst driving the U.S. Dollar sharply lower.

Trichet also added that he feels the current ECB policy is appropriate and that the economic recovery should proceed at a moderate pace. This line was recycled from the last policy statement.

Based on the what the ECB did and Trichet stated, one has to conclude that the European Central Bank is more hawkish than the U.S. central bank which is still discussing the possibility of expanding its balance sheet. These facts remain the driving force behind the Euro’s rally.

From what I see, the Euro is rallying because of sound economic reasons. High volatility or excessive speculation is not apparent at this time. Although short-term overbought conditions as well as nervousness ahead of Friday’s U.S. employment report may trigger a profit-taking break today, the main trend remains up and is not expected to be threatened at this time.

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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