U.S. Dollar Rising amid Euro Zone Uncertainty

The U.S. Dollar is trading higher this morning asuncertainty in the Euro Zone is driving investors into the safety of theGreenback.

The U.S. Dollar is trading higher this morning asuncertainty in the Euro Zone is driving investors into the safety of theGreenback.

The Euro is under pressure on two fronts. First, thesurprise resignation by German President Hoerst Koehler has once again raisedconcerns about the political instability developing because of the economicconditions in the Euro Zone. Secondly, investors are also worried over theoutlook for the Euro Zone banking sector amid fears of further sovereigndowngrades by major ratings agencies.

On Monday, Koehler announced his resignation after publicsentiment turned against him following negative remarks he made about Germany’s military mission in Afghanistan.Koehler’s resignation contributes to the on-going uncertainty in Germany amid the domestic economic challengesfacing the nation because of the sovereign debt issues in Greece, Spainand Portugal.Traders have reacted to this uncertainty like they have been for several monthsby selling the Euro. Once again control of the Euro is squarely in the hands ofthe bearish hedge funds and large institutions.

News that Franceis facing a possible downgrade of its AAA credit rating is also putting pressureon the Euro. Over the week-end French Budget Minister Francois Baroin broughtattention upon the developing situation in his country when he said “Theobjective is challenging and it will in part condition the savings strategiesthat we want to have.” His statementbasically says that he is worried about the challenges his country has inmaintaining its Triple-A rating. The market reacted to his statement by drivingup the cost of insuring French government debt against default.

Credit default swap spreads also increased for Greece, Portugaland Ireland,indicating that sovereign debt issues are still a major concern for Euro Zoneinvestors despite the injection of nearly $1 trillion into the economy.

Risk aversion is triggering sell-offs in commodity-linkedcurrencies led by hard sell-offs in the Australian and New Zealand Dollars. TheAussie is currently testing 50% of its recent short-term range of .8067 to.8550. This price is .8308. The Kiwi’sshort-term range is .6560 to .6862. This range creates a retracement zone at.6706 to .6669.

The USD CAD is rallying this morning led by the weakness incrude oil and equity markets. Support is coming from inside a retracement zoneat 1.0481 to 1.0394. The charts indicate the next upside objective is 1.0633.This area is likely to be tested should panic selling hit the crude oil andstock markets. Gains could be limited if the Bank of Canada hints at a Julyrate hike.