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Dollar Gains as Investors Become More Risk Averse

James Hyerczyk from ForexHound.com at 11/03/09


The U.S. Dollar is trading firm at the mid-session. Trading has been thin and rangebound ahead of tomorrow’s Fed meeting and Thursday’s Bank of England and European Central Bank meetings.

The Dollar opened up higher this morning based on a strong overnight trade. The Dollar gained strength after the Reserve Bank of Australia hiked its benchmark interest rate by 25 basis points. This was expected by traders, but the guidance offered by the RBA suggested that additional rate hikes were not in the near-term picture. Both higher yielding and commodity based currencies weakened on the news.

Investors are more risk averse today. Fear is high as evidenced by stronger gold and a higher VIX volatility index. Investors are worried that a recovery in the U.S. economy will lead to Fed action which strips the economy of stimulus money. This would pressure most likely put an end to the aggressive speculation in higher yielding, higher risk assets.

The EUR USD is trading sharply lower after trading inside of a tight range for the past four trading sessions. Traders expect the European Central Bank to leave its benchmark interest rate unchanged at 1%. In addition, the ECB is expected to say that stimulus plans will remain intact until the economy starts to show signs of a full recovery.

Pressure is on the GBP USD this morning. Speculators are looking for the Bank of England to leave interest rates at historically lower levels while extending its asset purchase program. The surge in gold today may be helping to limit losses.

The holiday in Japan is helping to keep the USD JPY in a tight range. Aversion to higher risk assets is helping to bring investors back to the Japanese Yen.

The USD CHF rallied sharply higher overnight and has held on to most of its gains. The main trend turned up on the daily chart when the market crossed 1.0285. Look for higher markets as long as this price holds as support.

The USD CAD opened higher, but the inability to break through yesterday’s high and the strong surge in the gold market encouraged selling. Look for weakness to develop into the close as long as this market stays below 1.0731. The chart indicates that 1.0522 is possible over the near-term.

The guidance offered by the Reserve Bank of Australia suggests that interest rates will remain stable for the next few months. This is putting pressure on the AUD USD, but the market is still trading inside of yesterday’s range of .8905 to .9121. The longer this market stays in this range, the greater the impending volatility.

The NZD USD is trading flat. Higher gold and lower equities are helping to keep this currency in a range. This market is trading inside of yesterday’s .7081 to .7267 range but straddling a 50% price at .7159.

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