Wednesday September 15, 2010 - 01:54:46 GMT
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U.S. Dollar falls Against All Major Currencies on Stronger Economic Reports
The U.S. Dollar declined against all the major currencies on
Tuesday after economic reports showed U.S. retail sales and business
inventories rose more than analyst expectations.
The friendly data helped ease investor concerns about the
outlook for the global economy, making them more willing to buy riskier assets.
Increased appetite for risk drove up demand for stocks and commodities while
encouraging the liquidation of assets considered safer, such as the U.S.
Traders bought the Euro after the friendly report was
released. The EUR USD rallied sharply higher for the second day in a row
following a slight setback overnight.
Now that the daily chart has reaffirmed its uptrend, momentum is likely
to carry this pair into a Fibonacci/Gann angle price cluster at 1.3049.
Early in the session the Euro was trading lower, 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 never
appeared to be threatened. Traders were basically using the report to pare positions
ahead of todayâ€™s U.S.
retail sales number after yesterdayâ€™s sharp move to the upside. Although the
report showed economic sentiment had dropped more than expected, the odds
remain low that Europe will experience a
double-dip recession. The strong rise in the Euro at the Dollarâ€™s expense
suggests that investors believe that the European economy will recover faster
than the U.S.
Pressure continued to mount on the USD JPY even after
current Prime Minister Kan was retained by voters after todayâ€™s
election. The decision to continue to support the Japanese Yen is a sign that
investors are not confident the government or the Bank of Japanâ€™s intent to
intervene is not being taken seriously. Furthermore,
investors also feel that an intervention may not be successful now because it
requires the cooperation of other central banks which may not be very helpful
at this time due to their dealing with economic issues of their own.
Technically, at a minimum, this market is going to have to
produce a daily closing price reversal bottom to get the ball rolling to the
upside. The best sign of a bottom, however, will be the formation of a weekly
reversal, but we wonâ€™t know it has formed until later in the week.
The GBP USD finally broke through the downtrending Gann
angle which had held this market down since the 1.5997 top formed on August 6.
This angle came in on Tuesday at 1.5457. The sharp acceleration to the upside
took out stops and attracted fresh buying. The current chart formation and
upside momentum indicates that this market is likely to rally over the
short-run into a retracement zone at 1.5647 to 1.5729.
Continue to look for the Dollar to weaken as long as there
is demand for higher risk assets. In addition, traders must monitor U.S.
economic reports. At this time it seems, investors are selling the Dollar on
economic news but at some point in the future this way of thinking is going to
shift. Based on the rally in the T-Bond market, it looks as if investors still
expect lower yields, which translates into a weaker outlook for the economy.
The Dollar is likely to continue to weaken against the Euro as long as
investors believe that the Euro Zone economy is on a faster path to recovery
than the U.S.
Watch the stock
market and the Euro as to whether this demand is waning. The problem with the
markets lately has been the lack of follow-through and the tendency to take
small, quick profits. Coupled with high volatility, this could lead to wild
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