Dollar rallies as China asks Banks to Curb Lending
The U.S. Dollar surged against most major currencies as
investors sought refuge in lower-yielding currencies following the announcement
that it was asking banks to curb lending for the rest of the month.
attempt to reign in bank lending is an attempt to put the brakes on a massive
lending spree in an effort to cool the economy.The availability of easy money through government stimulus and favorable
loan conditions helped fuel a huge surge in the Chinese economy. The pace of
the growth is a concern for central bank officials.Tomorrow, China is expected to report
double-digit 4th quarter GDP growth.
The Dollar also received a boost after Republican Scott
Brown won a U.S. Senate seat in Massachusetts.
Scott is expected to vote against the current healthcare plan which many feel
was going to cause U.S.
debt to go through the roof.
The combination of Chinaâ€™s aggressive action with the
Republican victory is expected to boost the Dollar while putting pressure on
equities and commodities.
The EUR USD continued its freefall on concerns over Greek
debt issues.Overnight the move
accelerated to the downside after International Monetary Fund Managing Director
Dominique Strauss-Kahn said Greeceâ€™s
debt woes are â€śseriousâ€ť.Without any aid
from the European Union, or the European Central Bank, look for Greeceâ€™s debt
issues to continue to mount.
European officials have stood there ground about providing
financial help to Greece,
saying that it is not their problem to solve. They also fear that providing aid
will mean other countries such as Spain,
Portugal and Ireland will
begin lining up with their hands out in expectations of free money.
Technically, the EUR USD broke through the December bottom
at 1.4217, reaffirming the down trend on the weekly chart. The chart indicates
that 1.3800 is the next major downside target, although 1.4000 may provide some
psychological support. At this time, it looks as if the only event that can
turn the Euro around will be if the EU or ECB provides help to Greece.
The GBP USD is trading sharply lower after support failed
and Bank of England
Governor Mervyn King issued a dovish comment about yesterdayâ€™s higher than
expected inflation report. Earlier losses were limited, however, after a report
showed that the U.K.
unemployment rate fell at the fastest pace since April 2007 in December.
Although the British Pound failed to form a closing price
reversal top on Tuesday, it sold off, nonetheless, when a 50% support price at
1.6355 was violated. The chart indicates that 1.6175 is the next downside
Overnight the BoEâ€™s King said that Tuesdayâ€™s reported spike
in inflation was a short-term event and not likely to last.The cause of the surge in inflation was most
likely the additional stimulus the BoE added in late Fall.
The tightening of lending in China is likely to slow down the
growth in the global economy and put pressure on higher yielding assets. This
is helping to put pressure on the USD JPY overnight as investors seek lower
yielding assets and safety.
The USD JPY is at a critical point on the charts. Although
Tuesdayâ€™s closing price reversal bottom was confirmed by a follow-through rally
last night, the lack of follow-through to the upside should be a concern to the
bulls. Yesterdayâ€™s bottom was triggered by a strong recovery in U.S. equity
markets.If U.S. stocks fall today, then the
Japanese Yen is likely to take back yesterdayâ€™s losses.Greater demand for the Yen should send the
USD JPY down to its next major retracement target at 89.30.
The USD CHF is soaring to the upside after it broke through
a key retracement price and a downtrending Gann angle.The break in the Euro is making Swiss central
bankers nervous which could lead to a surprise intervention.
Yesterday the Bank of Canada left interest rates unchanged,
but took measures to weaken the Canadian Dollar by increasing its asset-buyback
program.Weaker stocks, gold and crude
oil could put additional pressure on the Canadian Dollar.
Technically, a new main range has been formed in the USD CAD
at 1.0745 to 1.0224.This sets up the
next upside target at 1.0484 to 1.0546.
News that China
was taking steps to limit loans in an effort to cool the economy is helping to
put pressure on the AUD USD, one of its largest trading partners. The Aussie is
trading sharply lower overnight while setting up for a test of key Gann angle
support at .9094.Once this angle is
broken, this market could plunge further to its retracement zone at .9031 to
In addition to the bearish news from China, the NZD
is trading weaker because of an unexpected drop in consumer prices.Prices fell 0.20 percent during the 4th
quarter which lessens the chances of an interest rate hike sooner than
expected.At this time, traders believe
the Reserve Bank of New
Zealand will stick with its plan to begin
raising rates some time after the middle of the year.
Overnight, the Kiwi broke through a long-term uptrending
Gann angle and plunged sharply lower.Based on the main range of .6970 to .7206, the first downside target was
reached at .7206.A failure to hold this
price signals a further decline to .7150.
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