Investors Flee Higher Risk Assets for Safety of U.S. Dollar
For the fourth straight day, investors dumped higher risk
assets for the safety of the U.S. Dollar.Todayâ€™s weakness reflects a change in sentiment toward lower yielding
assets.Many investors are beginning to
realize that central banks are gearing up to end their stimulus programs and
begin considering other ways to remove excess liquidity from their financial
systems.As a result, investors are
taking money off the table in the asset classes that benefitted the most from
the weaker Dollar.
The EUR USD finished sharply lower.Based on the recent range of 1.4480 to
1.5063, the Euro has retraced .618 to 1.4696.A successful test of this area could result in the start of a
short-covering rally, but traders have to watch the momentum before trying to
pick a bottom.The daily closing price
reversal top at 1.5063 has been confirmed and the objective reached.A weekly reversal in still possible if the
Euro finishes lower for the week on Friday. Based on the current set-up, there may be
vicious retracement to the upside as bearish traders try to set up a secondary
During the recent sell-off, traders piled on the GBP USD
with almost every currency gaining on the Sterling.This is most likely the main reason why the
British Pound was relatively stronger than the other currency markets
today.For example, as the Euro
weakened, traders were forced to unwind Euro/Pound spreads.This gave the British Pound strength.It isnâ€™t that the British Pound is perceived
as stronger than the Dollar; itâ€™s just that the spreads have to be
adjusted.Once this situation is
rectified, the GBP USD should weaken as money leaves higher yielding
assets.Fundamentally, the U.K. economy
remains weak as evidenced by the recent report showing a contraction in the
economy during the Third Quarter.This
weakness is causing speculation that the Bank of England will expand and extend
its asset purchase program.
The USD JPY lost substantial ground today as Japanese
investors increased their repatriation of investment funds.Often at the end of the month, Japanese
companies repatriate funds earned overseas.While this may be happening, additional support is begin provided by
investors taking money out of higher yielding assets.The key area to watch is 90.15.This price represents a 50% retracement of
the recent rally and could prove to be an important support price for the start
of a short-covering rally.
Weaker equity and crude oil markets coupled with stern comments
from the Bank of Canada are helping to trigger a huge surge in the USD
CAD.The current rally has retraced more
than the normal amount which could be indicating overbought conditions.This will not be know until the market stops
going up and pulls back into the retracement zone at 1.0695 to 1.0602.If upside momentum continues then look for
serious resistance to develop as the market approaches an old top at
The USD CHF rallied sharply higher today after an early
hesitation at the 50% level at 1.0242.The close over this price indicates a test of 1.0292.Weakness could develop under 1.0242, but
buyers are likely to come in at an uptrending Gann angle at 1.0192.
Investors dumped the AUD USD hard after Australian inflation
numbers came out slightly below pre-market estimates.The Aussie sold off as investors took out the
premium that was put in on speculation the Reserve Bank of Australia would
hike interest rates by 50 basis points at its next meeting in November.Traders are now figuring a 25 basis point
hike will suffice at this time.
Additional pressure is building on this market as rumors
continue to swirl that China
may end its stimulus program sooner than expected. This action would mean a cut
in Australian exports.On the other
hand, Chinese production is expected to increase by 16% during the Fourth
Quarter.This may mean a pick-up in
exports of raw materials.Traders will
have to decide which factor will have the biggest impact on the Aussie.
Technically, the AUD USD is nearing a key 50% price at
.8949.If there isnâ€™t a technical bounce
at this price then look for a further decline to the .618 price at .8859.
The initial break today in the NZD USD was triggered by the
weaker Aussie Dollar, but later in the day another harder down move took place
as investors began to realize that the Reserve Bank of New Zealand is
not going to hike rates before the end of the year.Speculators are scrambling to get out of long
positions.Anyone who bought in
anticipation of a rate hike were really taking a chance as recent comments from
the RBNZ suggested that they would hold to their early decision to leave
interest rates unchanged until mid-2010.
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