Worries about Economy Losing Steam Drives U.S. Dollar Lower
The U.S. Dollar is under pressure against most majors as
investor concern that the U.S.
economyâ€™s recovery is losing steam drove traders into higher yielding assets.
The overnight weakness in the Dollar was triggered by a better than expected
economic report in Australia
and a strong surge in Asian equities.
The Dollar has been under pressure lately because of a
string of weak economic data while the Euro Zone economy has been showing signs
of strength, driving investors into riskier assets. Another concern at this
time is how long the weaker U.S.
economy will continue to drive investors into the higher yielding currencies.
At some point, global investors will turn their focus once again to the Dollar
because of risk aversion worries.
The AUD USD rose to its strongest level in three months on
signs that Asian economic growth continues to remain strong despite predictions
of a slow down in China.
Australian traders turned bullish after the manufacturing index in Australia rose
1.5 points to 54.4. Speculative traders are also looking for tomorrowâ€™s
Australian retail sales and building approvals to show advances for June.
On August 3, the Reserve Bank of Australia is expected to leave
interest rates unchanged for the third straight month.Traders will be watching the policy statement
for any signs that the RBA will resume its tightening campaign later in the
year. The central bank may have to take action against a possible spike in
inflation due to projected strength in the economy for late 2010 and early
Technically the Aussie continues in an uptrend. The drive
through the last swing top at .9068 was reaffirmed overnight. A new higher
swing bottom was formed at .8904. Continue to look for the trend to continue as
long as there are higher-tops and higher-bottoms.
Purchasing Managersâ€™ Index was down in July versus June, the reading remained
above 50 showing expansion. New Zealand Dollar traders read this a sign that
demand for goods and services will remain strong. The NZD followed through to
the upside after Fridayâ€™s minor reversal bottom. Strong upside momentum
indicates the market may have enough juice to challenge the last main top at
.7395. The main trend remains up with a strong chance a new higher swing bottom
will form at .7190.
The British Pound is the strongest gainer overnight. Traders
are buying the Sterling
ahead of this weekâ€™s Bank of England interest rate decision. Most investors
expect the central bank to leave interest rates unchanged but the key focus
will be on the BoEâ€™s outlook for inflation. The new inflation outlook will be
the central banks first since the government implemented financial austerity
measures. The BoE is expected to give its assessment on the effects of the
financial austerity measures on monetary policy and economic growth going
Technically, now that the British Pound has cleared a key
50% retracement level, upside momentum is expected to drive the market to the
.618 retracement level at 1.5967 before encountering new resistance. Continue
to look for higher markets as long as 1.5635 holds as support. The strong rise
in the Sterling
has this market in a position to post a daily closing price reversal top.
Bearish traders should watch for this formation to form on either an intra-day
or daily basis.
Demand for higher risk assets is driving the USD JPY higher
after this currency pair reached a new low for the year on Friday. The strong
rise in the equities has reignited interest in the carry-trade, fueling a
sell-off in the Japanese Yen.
This week the Australian Central Bank meets on August 3,
followed by the European Central Bank and the Bank of England on August 5. All
three central banks are expected to leave interest rates unchanged. Following
the release of their respective policy statements, traders will turn their
focus toward the release of the July U.S. Non-Farm Payrolls Report.
This report will be important because Dollar sellers will
have to decide whether to keep the pressure on the Greenback because of a weak
economy or begin to cover their shorts because of risk aversion.
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