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Dollar Weakens as Investors Seek Higher Yields

James Hyerczyk from ForexHound.com at 01/06/10


The Dollar is trading weaker at the mid-session as investors sought higher yielding assets amid news that the U.S. economy may be improving. This morning’s reports showing that private sector job losses had slowed and that the service sector of the economy improved helped encourage investors to demand higher risk investments.

Today’s weakness is taking place after the U.S. Dollar rallied overnight after yesterday’s closing price reversal bottom. The first objective was met at 77.77. Upside momentum then took the market to the upper end of the retracement range at 77.93 where it met strong selling pressure. Look for a resumption of the downtrend with 76.31 to 75.80 the next downside objectives.

The USD JPY is trading better at the mid-session. Earlier today, this currency pair completed a retracement of the 93.20 to 91.24 range at 92.22. Gann angle support at 91.28 also limited losses. As long as this angle holds as support, the market will remain strong. Fundamentally, traders are reacting to an improving global economy while expectations remain for the Japanese economy to remain under pressure. News of Finance Minster Fujii’s resignation but slight pressure on the market as this event seems to have been already priced in.

The EUR USD weakened into a retracement area at 1.4350 to 1.4319 before holding and beginning a strong rally. A close over this zone will be a positive development which could put the Euro back on pace to challenge a major retracement zone at 1.4680 to 1.4790. Traders will be watching for news regarding a possible bailout of Greece. Overnight, the Euro weakened after ECB member Juergen Stark said that markets cannot assume other nations will bail out Greece.

The main trend remains down in the GBP USD at the mid-session but this market is trying to establish support in a retracement zone at 1.6036 to 1.5988. Holding this zone could trigger a short-covering rally. Tomorrow the Bank of England will hold its first meeting of the year. Expectations are for the BoE to hold interest rates steady while continuing to provide stimulus to the economy in hopes of the start of a recovery.

The USD CHF is showing weakness at the mid-session following a test of a 50% price at 1.0379. Look for the weakness to continue as long as this market remains under 1.0409. The bigger picture suggests a break to 1.0212 - 1.0143 is possible following today’s short-term correction. Traders are also anticipating a possible intervention by the Swiss National Bank if the currency continues to appreciate against the Euro.

The downtrend in the USD CAD resumed late in the trading session after trading in a tight range overnight. The direction of gold and crude oil will continue to exert the biggest influence on this currency pair. Today’s strong rally in gold is helping to underpin the Canadian Dollar. Today’s downside action suggests this market is well on its way to a test of an old main bottom at 1.0265. Downside momentum may slow as the market approaches this level on concerns the Bank of Canada may try to support its currency.

The AUD USD broke out to the upside as traders renewed their interest in higher yielding assets. The rally above the .618 retracement level at .9144 is positive while the move through .9200 turned the main trend to up. Market participants will now try to establish support at .9144.

The NZD USD weakened overnight while confirming yesterday’s closing price reversal top, but selling pressure stopped, triggering a short-covering rally which has erased the earlier loss. At this time, the Kiwi is retesting a pair of downtrending resistance angles at .7333 and .7355. Sellers at these two angles could put pressure on this market once again, setting up a potential break to .7180 over the near-term. Taking out these two angles could trigger an acceleration to the upside.

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