Profit-Taking Weakens Dollar Overnight

The U.S. Dollar is giving back some of its gains from yesterday. Traders are taking profits on the thought that yesterday’s break was overdone.

The U.S. Dollar is giving back some of its gains from yesterday. Traders are taking profits on the thought that yesterday’s break was overdone. The rally in the Dollar was triggered yesterday when the stock market broke sharply. Concerns about financial reform fueled the second broad-based equity market sell-off since Friday. Liquidation was across the board as no sector seemed to be safe.

Today traders will be watching housing, financial stocks and the state of the U.S. consumer for direction. Two reports, the Case-Shiller House Price Report and the U.S. Consumer Confidence Report come out at the same time today. The variable will be news out of Washington concerning the extension of the First-Time Buyer Credit Program. This news will be a market mover.

The EUR USD has settled down after yesterday’s sell-off. Any weakness in the stock market will pressure this currency pair today. The first downside target is 1.4762 to 1.4696. Based on early trading action, this price does not look like it will be reached today before it retraces to 1.4820.

The GBP USD is trading higher. The overnight move is most likely short-covering as the fundamentals still suggest lower markets. Traders are still speculating that the Bank of England will be forced to extend its asset-purchase program because of a bad Third Quarter GDP number. Although the market is up at this time, 1.6198 to 1.6082 is the best downside target. This current move could retrace to 1.6471 before attracting selling pressure.

End-of-the-month repatriation by Japanese companies may be the reason why the USD JPY is trading lower overnight. Oversold conditions are also contributing to the rally. Japanese traders have been speculating that the Fed would begin taking liquidity out of the market. The upside objective remains 92.88, but this market could retrace to 91.20 before the uptrend resumes.

The USD CHF is giving back some of yesterday’s gains. The main trend turns up on a rally through 1.0228. The first major upside objective is 1.0242 to 1.0292. A weaker stock market is needed to drive this pair higher.

The USD CAD is trading weaker as technical factors are contributing to the overnight weakness. Last night the market exceeded its upside target at 1.0691 before starting its profit-taking correction. The current weakness could encourage selling pressure back to 1.0598. This next break should be a good buying opportunity. The Bank of Canada still wants a lower currency and remains adamant about getting it to weaken.

A Chinese official said last night that Industrial Production could increase by 16% during the Fourth Quarter. This could mean an increase in demand for raw materials. The AUD USD and NZD USD are both up on the news. The Australian Dollar and New Zealand Dollar continue to remain vulnerable to a drop in demand for higher yielding assets.