The U.S. Dollar is up
sharply against most major currency as investors continue to cut
exposure to higher risk and higher yielding assets. Some traders are
calling this the start of a major bottom. Others feel that this is
end-of-the-year liquidation and profit-taking after a prolonged move
It is also possible that this is the start of a
short-squeeze which could lead to a massive short-covering rally. Over
the past few months traders have jumped onboard the â€śshort Dollarâ€ť
train because lower interest rates continued to point toward a lower
Dollar over the long run. Short-term oversold technical indicators may
have caught many of these traders by surprise. The absence of major
economic reports in the U.S. and Europe this week may have created
overconfidence in traders who were caught off guard by comments from
the Fedâ€™s Bernanke and the European Central Bankâ€™s Trichet. I
began getting nervous earlier in the week after Fed Chairman Bernanke
mentioned his concern about the value of the Dollar in a speech. This
was followed by supportive comments from European Central Bank
President Trichet who used a speaking opportunity to announce his
agreement with Bernanke while trying to talk up the Dollar.
background story affecting the Dollar is the possibility that China may
adjust its currency upward to reflect its stronger economy. While China
remained hard-nosed about its currency this week when pressed by
President Obama to change its ways, speculators seem to be willing to
bet that China would eventually cave into international pressure and
make a small adjustment in how it pegs its currency.
combination of these events is giving traders an excuse to lighten up
their short Dollar positions. Technically, a close over 75.42 will form
a closing price reversal in the Dollar futures index. A follow-through
rally next week will confirm the short-term bottom and could lead to a
2 to 3 week rally.
The EUR USD is trading weaker and is now
inside of a key retracement zone at 1.4837 to 1.4787. The trend is
still up despite the numerous sell-offs this week. The main range is
1.4625 to 1.5049.
The downside momentum in the GBP USD suggests
that this market is headed to 1.6292 to 1.6154 before any strong buying
resurfaces. The main trend turned down on the daily chart when this
currency broke 1.6515.
The USD CHF continued higher today.
Todayâ€™s early surge took out 50% resistance at 1.0186, but the .618
retracement level at 1.0222 stopped todayâ€™s rally.
for higher yielding assets is triggering a sharp sell-off in the
Australian Dollar. Todayâ€™s weakness took out a retracement zone at
.9155 to .9096. After the market reached the low at .9060, conditions
became oversold, triggering an intraday short-covering rally.
NZD USD also took out a key retracement zone at .7302 to .7250 before
becoming oversold. Regaining .7250 could trigger additional
short-covering into the close.