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Profit−Takers Hit Dollar after Chicago PMI Surge

James Hyerczyk from ForexHound.com at 12/30/09


The U.S. opened higher after global equity markets weakened after a drop in demand for higher risk assets. The Dollar surged to its high for the day against most major currencies following the release of a better than expected Chicago PMI report. This report was another sign that the U.S. economy was recovering from the recession. After the early morning rush to a new high, buying fizzled as traders began to take year-end profits. At this time, the Dollar is still higher, but downside momentum is building which could take it lower by the close.

The USD JPY surged to the upside, taking out the late October high at 92.32, on its way to a three-month high. Concern over a potential bankruptcy filing by Japan Airlines is putting pressure on the Yen. Stories are also circulating that Japan’s AA rating is in danger of being cut if the country does not shore up its debt situation. Finally, traders are also factoring in potential action by the Fed in 2010 that will lead to higher interest rates and a stronger Dollar. Pre-holiday profit-taking is triggering an intra-day correction at this time.

A contraction in Euro Zone money supply pressured the EUR USD early in the trading session. This news was unexpected but could cause issues in the short-run as it could lead to a credit crunch. This is important to note because of credit problems in Greece, Spain and Portugal. So far the European Central Bank has not offered any aid to these regions. Tightening credit conditions could mean that the ECB may not be in a position to offer relief to these troubled regions if problems accelerate. At the mid-session, the Euro is mounting a strong comeback as profit-takers stepped in ahead of the New Year’s holiday.

The GBP USD started out under pressure this morning following yesterday’s reversal to the downside, but turned around shortly after the opening to move higher for the day. Investors are worried that the economy will remain weak over the near-term while the U.K. wrestles with a huge debt burden. The lack of any major news event points toward technical factors as the main reason for the turnaround. Relative Strength and the Stochastics Oscillator indicate this market may have reached oversold levels.

The USD CHF confirmed yesterday’s closing price reversal bottom at 1.0278 when it took out 1.0384. The chart pattern suggested the next upside objective was 1.0392 to 1.0419. Intraday activity took this market into the retracement zone where traders took profits. This helped the USD CHF turn negative for the day.

Weakening equity markets and lower gold helped to support the USD CAD early in the trading session, sending this currency pair into a key retracement zone at 1.0555 to 1.0600. Profit-takers decided to take action in this zone, triggering a slight sell-off at the mid-session. Look for the Canadian Dollar to rally if gold strengthens and equities weaken.

Falling global equity markets are pressured the AUD USD early in the trading session. End-of-the-year profit-taking triggered a sell-off in the stock indices which is led to reduced demand for higher yielding assets. Yesterday the Aussie stopped near a key 50% price at .8964. This price remains resistance today along with the .618 retracement price at .9018. A quick surge to the upside in U.S. equities, following the better than expected Chicago PMI Report, helped the Aussie bottom intraday. The weakening Dollar is helping the Australian Dollar turn positive at the mid-session.

The NZD USD is mounting a strong turnaround after trading weaker earlier in the session. This currency pair is exhibiting great strength now that it has overcome a resistance zone at .7144 to .7185. Buyers are also trying to push this market through a key downtrending Gann angle at .7215.

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