U.S. Dollar Snaps Winning Streak versus Euro

The U.S. Dollar is tradinglower against a basket of currencies this morning while snapping a three-daywinning streak versus the Euro on speculation that Federal Reserve members willsignal further measures are needed as part of the central bank’squantitative-easing plan to stimulate economic growth.

The U.S. Dollar is tradinglower against a basket of currencies this morning while snapping a three-daywinning streak versus the Euro on speculation that Federal Reserve members willsignal further measures are needed as part of the central bank’squantitative-easing plan to stimulate economic growth.

As a result of the currentrally, the Dollar has given back close to half of its gains from Tuesday whichwere triggered by a surprise rate hike by China’s central bank.

The key report weighing oninvestors today is the Fed Beige Book. This report which is a regional businesssurvey is expected to show that the U.S. economy’s recovery is slowing.Speculators are betting this morning that the report should confirm the needfor quantitative easing and may indicate the size needed to stimulate thecurrent lame recovery.

Besides the Greenback, othercurrencies were on the move overnight. The British Pound initially fell againstthe Dollar after Bank of England meeting minutes showed monetary policy makerssplit three ways on whether to maintain its asset-buying plan.

A big turnaround was fueled in the EUR USDafter European Central Bank Executive Board member Juergen Stark said an easymonetary policy can have negative effects. With the U.S. currently signaling additionalaid, this comment highlighted that the Fed and the ECB are moving in differentdirections.

The way the markets are reacting thismorning indicates that Tuesday’s reaction to the interest rate hike by China wasoverblown, and that the Federal Reserve’s plan to apply additional quantitativeeasing is still the market’s main focus.

Looking back at Tuesday’s action, it nowappears that the strength in the U.S. Dollar was most likely position paringand profit-taking by weaker traders, thereby setting up another sellingopportunity for the hedge funds and institutions.

Earlier in the week I commented that Eurolongs may have overestimated the size of the Fed’s proposed stimulus. Thisthought was based on comments from Fed Chairman Bernanke on Friday. Aftertaking some of the upside pressure on the Euro, it now looks like aggressiveinvestors have decided to reload on the long side, pending the outcome oftoday’s Beige Book.

Looking at the technical side, the Eurochanged the main trend to down when it crossed 1.3775 on Tuesday. Short-termoversold conditions prevailed however setting up the possibility of a 50%correction of the break from the top at 1.4159. This means that 1.3928 to1.3983 is the next potential upside target. On the downside, overnight themarket penetrated, but regained a major uptrending Gann angle at 1.3764.

If the Euro is topping, then it is likelyto fail between 1.3928 to 1.3983 within the next 2 to 3 day.

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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