Emerging Market Activity Sets Up U.S. Dollar for Rally

News surfaced on Wednesday that emerging market centralbanks may have begun activity to slow down the pace of acceleration in theircurrencies against the U.S. Dollar and capital inflows into their economies.

News surfaced on Wednesday that emerging market centralbanks may have begun activity to slow down the pace of acceleration in theircurrencies against the U.S. Dollar and capital inflows into their economies.

Although these central banks pledged earlier in the monthnot to manipulate their currencies and to let the market determine their ownlevels, this concerted effort seems to indicate that something is being donebehind the scenes that may help boost the Greenback.

Based on the December Dollar Index chart, this market seemspoised to breakout over the last swing top at 78.61. This move will turn themain trend up on the daily chart and could trigger an acceleration into adowntrending Gann angle at 79.06, then a 50% zone at 79.58.

The U.S. Dollar received additional support from abetter-than-expected Durable Goods report and a favorable Wall Street Journalarticle.

On Wednesday, the U.S. government reported a 3.3%rise in September Durable Goods orders. The jump caused traders to pare equityand risky commodities positions.

The U.S. Dollar traded higher across the board throughoutthe day after a Wall Street Journal article suggested the Fed “may opt for amore measured dose of QE this time around rather than the shock-and-awe versionwhich characterized QE1”.

Traders cut long positions against the Greenback as theyseemed to believe that the Fed was giving in to some G20 criticism regardingtheir aggressively expansionary monetary policy. A few G20 members believe thatthe Fed’s aggressive spending has been driving up assets in the past, but thattoday’s global economic conditions warrant a more conservative approach tostimulating the economy.

The article goes on to further state that the Fed is likelyto purchase a few hundred billion dollars of Treasury Bonds rather that theprevious estimate of $1 trillion. Thisspeculation led investors who aggressively shorted the Dollar to lighten up ontheir positions, triggering a short-covering rally in the Greenback.

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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