U.S. Dollar Finishes Flat after Mid-Session Weakness
The U.S. Dollar regained most of its mid-session loss to
finish only slightly worse than Tuesday. Comments from Fed Chairman Bernanke
triggered an early session break after he reiterated the Fedâ€™s stance that
interest rates would remain low for an â€śextended periodâ€ť.
Bernanke also emphasized that last weekâ€™s discount rate hike
was not an indication of monetary policy tightening. This was a concern for
most investors who wanted the Chairman to give a few clues as to the timetable
of additional hikes later in the year. Based on the Fedâ€™s assessment of the
economy, it is very likely that the Fed will leave interest rates unchanged for
the rest of the year.
The lack of signs of sustainable growth in the economy is
what is keeping the Fed from hiking rates. This is also what initially drove
the Dollar lower.In addition, traders
seemed to be squaring up positions after over-reacting to last weekâ€™s surprise
hike in the discount rate.
The EUR USD rallied after Bernankeâ€™s statement despite
on-going turmoil in Greece
triggered by a labor strike. Technically, this market held support at a .618
retracement level at 1.3483 and a main bottom at 1.3443. Last Fridayâ€™s
confirmed closing price reversal bottom pattern remains intact. The charts are
also suggesting that regaining 1.3656 will be a sign of strength, but it will
take a trade through the old main top at 1.3788 to turn the main trend to up.
The GBP USD spent most of the day inside of Tuesdayâ€™s range
and basically treaded water the entire day. The British Pound had almost no
reaction to Bernankeâ€™s comment about the future of U.S. interest rates. Investors
instead chose to focus on the problems in the U.K. economy, the growing budget
deficit and Fridayâ€™s final fourth quarter GDP.
The prospect of lower U.S. interest rates for an
â€śextended periodâ€ť helped weaken the USD JPY initially, but the Dollar recovered
versus the Yen as the market approached the mid-point of the session. Technical
factors seemed to drive this market up after fresh selling failed to trigger a
break to the downside following a penetration of a .618 retracement level at
89.92. Intra-day support was established at this price however, regaining the
50% level at 90.34 will be needed to show strength.
The stronger Euro deadened the chances of another
intervention by the Swiss National Bank which helped to pressure the USD CHF. This
pair traded inside of Tuesdayâ€™s range which could have been an indication of impending
volatility. Last Fridayâ€™s closing price reversal top pattern remains intact,
which makes this market vulnerable to a short-term correction over the next 2
to 3 days. If the Euro picks up strength, then look for this move to continue
to develop as long as the main top at 1.0897 remains valid.
Bernankeâ€™s comments about the U.S. economy and the direction of
interest rates helped weaken the U.S. Dollar while triggering short-covering
rallies in Gold and Crude Oil. The pick-up in demand for commodities put
pressure on the USD CAD after this pair completed a short-term retracement to a
50% price at 1.0574. Wednesdayâ€™s higher, high and lower close could lead to
more downside pressure tomorrow. Regaining 1.0574 however could trigger further
upside momentum to 1.0623.
Stronger equity markets as well as overall demand for higher
risk commodities helped to boost the AUD USD and NZD USD. Although both markets
are in downtrends, further upside movement will be dictated by investor demand
for higher yielding assets.
On Wednesday, traders seemed to be trying to erase last
weekâ€™s loss that was triggered by the Fedâ€™s hike in the discount rate. This was
taking place because Bernanke did a good job convincing investors that the
Fedâ€™s surprise move did not mean a tightening of monetary policy and that
interest rates would remain low for an â€śextended periodâ€ť.
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Mon 18 Dec
10:00 EZ- final HICP Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
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POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.
POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity
POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
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