U.S. Dollar weakens as Investors put Risk Back on the Table
The U.S. Dollar finished the day down against most major
currencies with the exception of the Japanese Yen. Low volume ahead of Fridayâ€™s
U.S. Employment report may have contributed to the weakness in the Dollar as
traders threw their support into the higher-risk, commodity-linked currencies
after the thinly traded equity markets posted strong gains.
The EUR USD traded higher but inside of Tuesdayâ€™s range.
This pattern indicates impending volatility. The lack of fresh news today helped
to hold the market steady. A late session surge in U.S. equity markets helped turn the
Euro positive shortly before the close.
Lately the news coming out of the Euro Zone hasnâ€™t been
encouraging for the bulls but hasnâ€™t offered any surprises for the bears
either. Look for an acceleration to the downside if bottom at 1.2110 fails to
hold. Watch for a change in trend if the market can muster enough momentum to
take out the last swing top at 1.2453. Volatility is expected to come back into
the market in a big way so be prepared for unexpected news.
The strong rise in crude oil and U.S. equities put pressure on the
USD CAD all session. Volatility is much higher today compared with Tuesday when
the market barely reacted to the news of an interest rate hike by the Bank of
Wednesdayâ€™s break took out two key levels at 1.0481 and
1.0394 while changing the trend to down on the move through the last swing
bottom at 1.0413.Signs that the global
recovery may be back on track are likely to continue to strengthen demand for
higher risk assets, especially crude oil. Losses may be limited by the news
that the BoC is not likely to hike interest rates in July due to unstable
conditions in the global economy.
The GBP USD posted a strong gain overnight to continue its
move toward a major 50% price level at 1.4810 but buying dried up as the
euphoria from the collapse of the Prudential/AIG deal wore off. Tuesdayâ€™s surge
after the deal was cancelled was attributed to the short-covering of hedges
placed by Prudential. Once they were done covering, no one was left to buy. A
lower close today will form a daily closing price reversal top. This pattern
usually sets up a 2 to 3 day break with the first objective 50% of the first
leg up. The charts suggest a pull-back to at least 1.4499 or perhaps 1.4435 is
likely during the 2 to 3 day time frame.
The USD CHF closed lower, and like the Euro had an inside
day formation, indicating impending volatility. If the Euro rallies, then look
for the Dollar/Swiss to take out the last swing bottom at 1.1469. A move
through this price will turn the main trend down and could trigger a correction
back to 1.1309 to 1.1218.
The USD JPY soared on Wednesday, buoyed by greater demand
for risky assets and on speculation that the next prime minister will favor a
The Japanese Yen began to weaken overnight following the
resignation of Japanese Prime Minister Yukio Hatoyama.Traders are worried that the economy will
weaken further during the election process at a time when Chinaâ€™s economy is slowing and Europe
continues to struggle. In addition, speculators sold the currency because they
believe the next prime minister will be NaotoKan who favors a weaker currency.
equity markets also contributed to the weakness in the Japanese Yen.
After piercing a key 50% retracement level at 91.61
overnight, the USD JPY was able to establish support at this level, setting up
a further rally to the Fibonacci retracement level at 92.41.A trade over this price could trigger an
acceleration to the upside.
The AUD USD rallied sharply higher after once again finding
support at a key 50% price level at .8308. The catalyst behind Wednesdayâ€™s
rally was the strength in the U.S.
equity markets and the better than expected U.S. Home Sales Report which
indicated the global economy may be back on track.
Thin trading conditions contributed to the strength in the U.S. equity
markets which means that this rally may be short-lived. Many of the larger
traders and institutions are standing on the sidelines ahead of Fridayâ€™s
Non-Farm Payrolls report. Todayâ€™s rally is likely just position squaring and
risk paring ahead of the report. Weakness will develop if selling hits the
equities again and the Aussie canâ€™t hold the retracement level at .8251. On the
upside, momentum and short-covering could drive this market to .8550 over the
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