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Jump in Industrial Output Boosts U.S. Dollar

James Hyerczyk from ForexHound.com at 12/15/09


The U.S. Dollar continues to remain firm at the mid-session. Last night the main trend turned up on the weekly chart leading to a firm opening this morning. Early today, a jump in industrial output helped give the Dollar a boost as it represented another sign that the Fed is likely to lean toward hiking interest rates sooner than expected.

The EUR USD is threatening to break through 1.4500. Overnight sellers hit the Euro following the release of the German ZEW Economic Expectation Index report.
Technically, the EUR USD is headed toward a major uptrending Gann angle from the March low at 1.2456. This angle comes in at 1.4496 today. In addition, a minor .618 retracement level is at 1.4465. Breaking under these two levels will be bearish for the long-run, but oversold short-term indicators could trigger a technical bounce or short-covering rally.

The GBP USD is under pressure but inside of a retracement zone at 1.6292 to 1.6154. Overnight news that U.K. November CPI increased to 1.9% was largely ignored by traders since the pre-report guess was for an increase of 1.8%. This currency is not likely to move until it breaks out of its short-term trading range.

Today’s better than expected U.S. Industrial Output report is putting additional downside pressure on the Japanese Yen as it sends a signal to traders that the Fed is coming closer to hiking its benchmark interest rate. Traders are becoming more confident that the Fed will hike rates sooner than expected while the Bank of Japan is expected to keep interest rates unchanged at 0.10% on December 17th. The increase in the spread between the two interest rates is triggering a reversal in the carry-trade. Investors are buying Dollars to payback loans while simultaneously borrowing Yen. Technically, the USD JPY could hit a downtrending Gann angle at 90.13 today.

Weaker Gold and the stronger Dollar helped to trigger an overnight rally in the USD CHF. The up move accelerated following the release of the better than expected U.S. Industrial Output report. This market is now at its highest level since October. Look for the old top at 1.0337 to become new support.

Weaker gold and crude oil is putting pressure on the Canadian economy which is helping to give the USD CAD a boost. This currency pair currently remains rangebound, however, with 1.0691 the upside objective and 1.0459 the downside support.

The AUD USD is feeling downside pressure at the mid-session as traders lowered to 66 percent from 80 percent the possibility of a Reserve Bank of Australia rate increase at its next meeting on February 2nd. The RBA minutes from its last meeting released last night, showed that arguments for a third rate increase are “finely balanced”. This change in member attitude had the effect of “materially shifting the stance of policy to a less accommodative setting.” In other words, its time to take a pause in rate hikes. Technically, the Aussie rejected 50% resistance at .9167. The new downside target is .9014.

The NZD USD is trading lower at the mid-session. This market hasn’t been able to attract any buyers since the spike to the upside last week after the release of the hawkish statement by the Reserve Bank of New Zealand. It’s beginning to look like the two day rally was enough for investors to adjust their dovish positions. The chart indicates that .7180 to .7148 is a potential downside target. Today’s break came close to hitting the first target price at .7180 before buyers stepped in at .7187.

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