Fear that China may Overheat Triggers Surge in U.S. Dollar.
The U.S. Dollar surged overnight as traders took protection
against a shift in Chinaâ€™s
expansionary monetary policy. The overnight announcement, that Chinaâ€™s
economic growth and inflation figures exceeded expectations fueled speculation
that it was poised to begin restricting loans and ending stimulus.Fear that the economy may overheat is
triggering demand for lower yielding assets at the expense of higher risk
Overnight the Cash Dollar Index rallied to its highest level
in 5 months and now seems well on its way to retrace its 2009 range of 89.62 to
74.17.This makes 81.90 to 83.72 the
next valid upside target.
The EUR USD weakened further overnight as the cost to
protect Greek bonds from default soared to a new record.Losses were limited, however, by a rumor which
said the European Union was preparing to loan money to the country. The rumor
was denied, but investors, nonetheless, took protection against a possible
massive short-covering rally by lightening up positions.
The chart pattern suggests the EUR USD is holding the
psychological level of 1.4000; however, 1.3800 remains the next valid downside
target.Short-covering today could send
this market back to the old bottom at 1.4217.
The GBP USD weakened further overnight on the news that the U.K. budget
deficit widened.A lack of confidence in
the economy could also be a driving force behind the recent weakness as
investors fear that the U.K.
may be falling behind its peers in the midst of the economic recovery.
The current two-day break has created two key ranges:1.5832 to 1.6457 and 1.5895 to 1.6457.These ranges create retracement zones at
1.6144 to 1.6071 and 1.6175 to 1.6108. The overlap of these two retracement
zones suggests possible support developing inside 1.6144 to 1.6108.In addition, uptrending Gann angle support is
at 1.6132 today.Watch for a possible
technical bounce in this zone.
The USD JPY is rising again overnight on speculation the
Japanese Yen is poised to once again become the worldâ€™s carry currency.Additional weakness hit the Yen following a
report that demand for lending dropped.This news could raise fears of deflation and is definitely a signal that
the Bank of Japan will keep interest rates at historically low levels at its
January 25th meeting.
Investors seem to believe that Japan will be the last country to
exit its stimulus plans.This line of
thinking was backed by a comment from Bank of Japan Governor Shirakawa who said
the central bank â€śis aiming to maintain an extremely accommodative financial
Based on the short-term range of 93.77 to 90.31, traders
should continue to look for the USD JPY to rally to 92.04 to 92.45 before
finding sellers.Additional resistance
is at a downtrending Gann angle at 92.65.Up trending Gann angle support is at 91.31.
The USD CHF continued to soar overnight.The next upside target is the December high
at 1.0507.Gann angle support is at
1.0450.This angle has to hold or the
profit-taking stops will trigger a collapse.Traders have been buying the Dollar against the Swiss Franc in
anticipation of an intervention by the Swiss National Bank because of its
appreciation against the Euro.
Technical factors could pressure the USD CAD now that it has
retraced greater than 50% of its recent break.Based on the main range of 1.0745 to 1.0224, the key retracement zone is
1.0484 to 1.0546. This market is currently testing this area.A failure to hold uptrending Gann angle
support at 1.0424 will be another sign of weakness.Downtrending Gann angle resistance is at
1.0515.This price was tested early last
night when the market rallied to 1.0524.
Fundamentally, the recent action by the Bank of Canada
suggests that it will defend against a rapid rise in the currency.This creates a potentially long-term bullish
scenario. Short-term conditions are overbought, which may trigger a mild
The AUD USD is trading slightly better following its attempt
to test a major 50% price level at .9031. Short-term conditions appear to be
oversold which could trigger the start of a short-covering rally back to .9189
especially if it closes higher today.
The recent actions by China to tighten up its lending
policies could have long-term implications on the Australian economy.The formation of a secondary lower top will
be a strong sign that a top has been formed.The next Reserve Bank of Australia
meeting is February 2nd.Traders are
leaning toward another rate hike, but have cut down the probability of the hike
now that China
has begun tightening.
A reported slow down in the New Zealand economy coupled with
monetary tightening in China led to the huge sell-off on Wednesday.Last night, there was additional selling
pressure but nothing compared to yesterdayâ€™s weakness.This could be suggesting that conditions are
Technically, the NZD USD completed a .618 retracement of the
.6970 to .7442 range to .7150. Additional support is being provided by the
uptrending Gann angle at .7160. Regaining .7206 will be a sign of
strength.This move could trigger the
start of a retracement back to .7292 to .7327.
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10:00 EZ- final HICP Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
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15:30 US- EIA Crude Thu 21 Dec
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POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity
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