USD JPY Tumbles as Return of Risk Aversion Rocks the Markets
The USD JPY reversed its four day rally as traders sought
safety in lower yielding assets following an announcement by President Obama to
curb trading at financial institutions. The immediate reaction was to sell
higher risk assets after Obama called for a reduction in the size and trading
activities of financial institutions. The downside reversal in the USD JPY sets
up a test of a major 50% price at 89.30.
The U.S. Dollar traded mixed against most major currencies
as profit-taking and volatility dominated the trade. Earlier in the session,
the U.S. Dollar surged 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 triggered demand for lower yielding
assets at the expense of higher risk stocks and commodities.
Throughout the New
York session, aggressive buyers backed away from
chasing the Dollar higher, leading to a profit-taking break. Overbought
conditions and intraday turnarounds in the Euro and Yen were the primary causes
behind the Dollarâ€™s weakness.
The EUR USD weakened further during the New
York session, but losses were limited by a persistent rumor which
said the European Union was preparing to loan money to Greece to shore
up its budget deficit. 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 held the
psychological level of 1.4000; however, 1.3800 remains the next valid downside
target.Short-covering could send this
market back to the old bottom at 1.4217.
The GBP USD weakened further 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 British Pound closed off its low but
still finished down after testing a series of retracement levels between 1.6144
The USD CHF weakened at midday but managed to finish higher
for the session and avoided a potentially bearish closing price reversal top. This
market soared overnight but backed off as it approached the December high at
1.0507. A failure to hold an uptrending Gann angle at 1.0450 triggered profit-taking
stops at the mid-session, but a late session short-covering rally helped regain
Technical factors tried to pressure the USD CAD as it
approached a 50% level at 1.0484, but these forces were not able to keep this
pair down into the close, setting up the likelihood of a further rally to
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 finished near its low as investors continued to
punish higher yielding currencies. This pair traded slightly better this
morning before falling as traders began to factor in Chinaâ€™s recent tightening action
and Obamaâ€™s proposal. This market failed to hold a 50% level at .9031 and is
now poised to trade down to a .618 level at .8961.
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.
The NZD USD continued to weaken following a break in U.S. stock
markets. Demand for higher risk assets fell throughout the day, leading to the
liquidation in the Kiwi.Key Fib support
at .7150 was violated which could trigger further weakness to .7075 over the
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