U.S. Dollar Rises after China Tightens Interest Rates
The U.S. Dollar erased early overnight losses and is now
trading higher after China
shocked the Forex markets with a surprise hike in interest rates. Chinaâ€™s
move to curb excessive lending and curtail price increases drove traders into
lower yielding, safe haven currencies.Chinaâ€™s central
bank sold 3-month bills at a higher interest rate for the first time in 19
The AUD USD is trading lower before the New York opening. Early in the trading session,
the Aussie surged to the upside after a strong retail sales report heated up
speculation that the Reserve Bank of Australia would hike interest rates
once again at its next meeting on February 2nd.
The news of Chinaâ€™s
rate hike triggered a profit-taking sell-off as traders read this action as a
sign that demand would slow for raw materials from Australia. A drop in demand for
commodities would hurt exports and the economy.Technically, the Aussie Dollar is in a position to post a daily closing
price reversal top which could lead to a correction to .8999 - .8937.
The NZD USD rose in conjunction with the good news from Australia, but weakened after China hiked
interest rates.Like the Australian
economy, the New Zealand
economy relies heavily on exports to China.The move by the Chinese government signals
that demand for New Zealand
goods may be curtailed. Technically, a closing price reversal top is forming
which could lead to a correction back to .7198 - .7145 over the near term.
Support continues to erode for the GBP USD as this market
remains top heavy. Overnight selling pressure took out weak longs who were
trying to establish support at a retracement zone at 1.6036 to 1.5988. If
selling pressure continues, the most obvious downside objective is the recent
bottom at 1.5832.
This morning, the Bank of England is expected to leave
interest rates at 0.50% while leaving its asset purchase program intact.The surprise would be a change in its
quantitative easing program.
Trumping the BoE meeting is the heated debate over the
budget deficit.Prime Minister Gordon
Brown and Conservative opposition leader David Cameron are currently engaged in
a heated discussion on how to handle the growing budget difficulties.
The EUR USD weakened overnight as demand for higher risk
assets dropped following the rate hike in China.At this time, the Euro is stuck in a range
between 1.4217 and 1.4483.Prices are
currently hugging the retracement zone of this range at 1.4350 to 1.4319.
Bearish comments from the new Japanese Finance Minister
helped trigger a surge in the USD JPY.Overnight NaotoKan said he wanted to see a weaker Yen.This announcement is leading traders to
may be more inclined to stem any sharp rise in its currency.Kan
feels that his job will be to keep the Yen at an â€śappropriate levelâ€ť.His job will be to keep up interest in
Technically, the USD JPY should remain strong as long as the
uptrending Gann angle at 91.58 remains intact.Based on the main range of 101.44 to 84.83, traders should look for a
retracement to 93.13 to 95.09 over the near term.
The stronger Dollar is helping to pressure the Swiss Franc.
Current price action suggests the formation of a daily closing price reversal
in the USD CHF.Based on the short-term
range of 1.0507 to 1.0242, traders should look for a minimum retracement to
1.0374 - 1.0406.
The USD CAD is picking up strength ahead of the U.S.
opening.The current chart set-up
suggests a possible closing price reversal bottom at 1.0290.The first upside objective is 1.0459.Weaker gold and crude oil prices could
trigger an acceleration to the upside.
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