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Dollar Continues to Weaken Against Most Majors

James Hyerczyk from ForexHound.com at 12/01/09


The U.S. Dollar continued to weaken overnight against most major currencies after China announced that its manufacturing sector rose to a seasonally adjusted 55.7 last month.  This growth rate was the fastest pace in five years or since the index began being tracked.


Talks continued in Dubai to shore up its debt woes.  Traders are continuing to chip away at last week’s losses in the foreign currency and equity markets as they grow more confident that this issue is a local problem rather than worldwide.  Officials are defining the talks with creditors as “constructive”.  As this situation improves, investors are stepping up demand for higher yielding currencies and assets.


The EUR USD is up again overnight and in a position to challenge yesterday’s high at 1.5083.  Upside momentum is building which can trigger a further rally to the high for the year at 1.5144.  Later this week, the European Central Bank is set to meet.  Traders expect interest rates to remain unchanged, but ECB members will make announcements regarding the gradual ending to government stimulus plans.


The GBP USD has erased yesterday’s weakness and is now trading higher.  On Monday, this currency pair fell after U.K. consumer confidence unexpectedly fell.  This morning the British Pound is trading at 1.6575 which is a 50% retracement of the 1.6878 to 1.6271 range.  Further upside action could take this market to 1.6646.  This retracement rally is very important to the structure of this market.  A failure to rally above this potential resistance zone could set up a secondary lower top. 


The USD JPY is trading sharply higher after the Bank of Japan took action to weaken its currency.  While not actively intervening to weaken the Yen, the BoJ provided additional liquidity to the economy by saying it will provide three-month loans to commercial banks at an interest rate of 0.10 percent.  This action by the BoJ is expected to help stimulate growth and prevent deflation.  Some analysts feel, however, that the size of the stimulus package is not enough to turn the economy around.  Traders are nonetheless selling Yen to lighten up exposure.


Higher equity and commodity markets are helping to boost the Canadian Dollar.  As demand for higher yielding assets increases, look for more weakness in the USD CAD. This morning’s trading action has put this currency pair in a position to turn the main trend down on the daily chart on a move through 1.0449.  An acceleration to the downside could start following a break of the November bottom at 1.0416.


The Reserve Bank of Australia raised its benchmark interest rate by 25 basis points to 3.75 overnight as expected.  Although the AUD USD is posting a gain, this upside movement is being attributed mostly to demand for higher yielding assets.  The RBA’s statement contained language that is being perceived as dovish since it said that central bank tightening may curb inflation.  This is leading to speculation that further rate hikes may be spread throughout the year. 


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