U.S. Dollar Gets Boost from Flight-to-Safety Buying

Flight-to-safetybuying could be the theme today if conditions continue to escalate in theMiddle East, particularly Libya.Overnight the U.S. Dollar moved higher against most major currencies as turmoilin Libyatriggered a surge in oil prices. Traders took protection by dumping riskyassets and moving money into the Greenback.

Flight-to-safetybuying could be the theme today if conditions continue to escalate in theMiddle East, particularly Libya.Overnight the U.S. Dollar moved higher against most major currencies as turmoilin Libyatriggered a surge in oil prices. Traders took protection by dumping riskyassets and moving money into the Greenback.

Conditionsin the Pacific Rim currencies turned bearishfrom the opening as investors dumped the Australian Dollar because of the rallyin crude oil. The New Zealand Dollar fell sharply following a deadlyearthquake. Finally, the Japanese Yen broke lower on the news that Moody’sInvestors Service had lowered its outlook on Japanese sovereign debt.

Thereaction by currency traders was not out of the ordinary as typically there isa move to safety during periods of unrest. Investors looking for safe havensusually spread the risk among the lower-yielding U.S. Dollar, Swiss Franc andJapanese. Overnight the focus seemed to be on the Dollar.

The rallyin crude oil hit the Australian Dollar particularly hard. The fear is that highoil prices will curtail economic expansion in China, leading to a slowdown indemand for Australian goods and services. The devastating earthquake that hit New Zealandcaused significant damage which may have an impact on first and second quarterGDP. This news coupled with the shedding of risky assets put downside pressureon the Kiwi.

Finally,the Euro fell sharply against the Dollar but cut some of that loss after YvesMersch, chief of Luxembourg’scentral bank said in an interview with Bloomberg that the European Central Bankmight be more hawkish in its language on inflation at next week’s meeting.

Technically,the Australian Dollar formed another lower top at 1.0157. The two-previous topsare 1.0200 and 1.0256. This is a strong indication that this market is gettingready to change the trend. A penetration of the last swing bottom at .9943 willchange the trend to down.

The maintrend is still down in the Euro. On Monday, the market formed a minor closingprice reversal top. This pattern was confirmed overnight, driving the marketinto 1.3525. The hawkish comments from Mersch then triggered a short-coveringrally. The bigger chart picture shows the Euro straddling a major 50% price at1.3577. Short-term, the Euro remains inside of the 1.3428 to 1.3715 range.Unless conditions heat up dramatically in the Middle East,traders may be content to hold the market inside this range until the next ECBpolicy meeting on March 3.

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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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