Tuesday September 14, 2010 - 14:33:37 GMT
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Forex Hound - www.forexhound.com
Strong Overnight Dollar Rally indicates Risk Aversion is Back On
The EUR USD is trading low and giving back some of
yesterdayâ€™s gains after it was reported that the ZEW indicator of German
economic sentiment fell sharply in September to -4.3 from 14 in August.
Pre-report economist guesses were for a drop in the index to 9.0.
Despite the overnight weakness, the main uptrend does not
appear to be threatened. Traders are basically using the report to pare
positions after yesterdayâ€™s sharp move to the upside. Although the report
showed economic sentiment had dropped more than expected, the odds remain low
at Europe will experience a double-dip
Technically, the Euro is likely to find support following a
pullback into a retracement zone at 1.2793 â€“ 1.2754. The charts still indicate
a resistance cluster and potential upside target at 1.3049 by September 16.
Overnight the U.S. Dollar reached a new 15-year low versus
the Japanese Yen on uncertainty regarding a leadership election in Japan. At issue
was whether the current Prime Minister
Kan would keep his job or not. Kan has been a staunch
supporter of intervention. When it was all over, Kan was able to keep his job, but the
December Japanese Yen has barely backed down from its overnight high at 1.2048.
The inability to break the Japanese Yen shows a lack of
confidence in the government and the Bank of Japanâ€™s ability to pull off a
successful intervention. By taking the Yen to a new high, investors are saying
the countryâ€™s leaders lack the clarity and conviction to weaken the currency.
The Dollar is trading better against most majors with the
exception of the Japanese Yen, indicating that traders may take risk off the
table today after yesterdayâ€™s strong demand for risky assets driven rally.
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