U.S. Dollar Exposed to Year-End Profit-Taking

The U.S. Dollar fell overnight as traders took advantage of the thin, holiday trading by taking profits after the almost month-long rally.

The U.S. Dollar fell overnight as traders took advantage of the thin, holiday trading by taking profits after the almost month-long rally. Demand for higher yielding assets also contributed to the weakness for the second day in a row buoyed by a rise in global equity markets. Finally, some of the selling pressure can be attributed to concerns over rising debt in the U.S.

Losses may be limited in the Dollar today due to the thin trading conditions and the release of a pair of positive economic reports. Investors expect today’s S&P/Case-Shiller October Index of Home Prices and Conference Board confidence report to reaffirm the turnaround in the economy.

The developing chart pattern suggests that the Dollar is vulnerable to a substantial correction before fresh buying resurfaces.

The EUR USD is up overnight boosted by a report which showed rising prices in Germany. The European Central Bank expects inflation to rise over the near-term, but remain under its 2% annual target. A new main bottom has been formed at 1.4217. The chart pattern suggests that upside momentum may be building with a possibility for a rally back to 1.4680 over the near-term.

The GBP USD popped to the upside overnight as traders returned to work after an extended holiday. This market was unable to hold on to its gains, however, and retreated to the downside. Investors are still concerned about the U.K. budget deficit and struggling economy. A small support base is being built on the charts, which suggests further upside is possible. The lack of fresh positive economic news and the New Year’s holiday could help to limit upside movement however.

The USD JPY remains in a tight range but with a bias to the upside. Expectations of positive U.S. economic reports are helping to drive the Yen lower along with renewed demand for higher yielding assets.

The USD CHF failed to hold the old top at 1.0337 and plunged to the downside as forecast. Downside momentum is building which could take this market down to a key retracement zone at 1.0212 to 1.0143.

The slide in the USD CAD continued overnight following Monday’s close under a key retracement price at 1.0459. Last night’s action also took out a main bottom at 1.0405 to reaffirm the downtrend. The Canadian Dollar is being boosted by expectations of a recovery in the U.S. economy and rising crude oil prices. A recovery in the U.S. economy is expected to be a positive influence on the Canadian economy. Rising crude oil prices are expected to help the Canadian export surplus.

The strong surge in global equity markets boosted by increased demand for higher yielding assets helped the AUD USD rally overnight. The first upside objective at .8964 was reached last night. Upside momentum could take this market back to the .618 retracement level at .9018 before new selling pressure surfaces.

Short-covering and demand for higher yielding assets is helping to drive the NZD USD higher. Overnight, the New Zealand Dollar surged to the upside, fueled by greater demand for higher yields and a rise in global equity markets. Two objectives were hit last night at .7144 and .7185. The next upside target is .7215.