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Thin Pre−Holiday Trading Pressures Dollar

James Hyerczyk from ForexHound.com at 12/24/09


The U.S. Dollar is trading lower overnight under thin, pre-holiday selling pressure.  Although it is difficult to gauge the actual reasons behind the weakness, it’s easy to speculate that the huge run-up in the Dollar the past few weeks is making it ripe for profit-taking.


The most important thing that traders should take away from these markets at this time is that sentiment is shifting away from risk-based decision making to more fundamentally driven decision making.  The rally earlier in the week and yesterday’s weakness are prime examples.  For example, traders drove up the Dollar on good existing home sales news on Tuesday while driving it lower on poor new home sales on Wednesday.  Moving forward into the new year, it is important to note that volatility is likely to rise in the short-run as speculators and investors adjust to a new way to make trading decisions.


The EUR USD is up again overnight.  The chart pattern suggests a possible weekly reversal up.  In addition, this currency pair could complete a 50% retracement to 1.4680 before new sellers step in.  Debt issues in Greece, Spain and Portugal could rear up at anytime which could trigger fresh selling pressure.


Bearish pressure is likely to continue to push the GBP USD lower, but a short-term retracement may have to occur before fresh selling pressure begins.  The slow growth in the economy and the U.K. budget deficit remain the biggest reasons for the weakness.


Profit-taking after a huge run-up the past five days is helping to weaken the USD JPY.  Attractive yields and improving economic conditions should continue to help the Dollar rise versus the Yen after the holiday.  Look for bullish traders to re-enter the long side after prices retrace slightly.  Upside momentum should then take this market to the October high at 92.32.


Overbought conditions and end-of-the-year profit-taking is helping to pressure the USD CHF.  Following a huge surge to 1.0507, this currency pair has now retraced back to the old main top at 1.0337.  In addition, uptrending Gann angle support is underpinning the market at 1.0318.  A failure to hold this level could trigger further weakness.


The USD CAD continues to erode as traders reposition themselves in anticipation of an improving Canadian economy.  Traders feel that an improving U.S. economy will help improve the Canadian economy at a faster pace than previously estimated.  After testing the upper-band of a wide trading range at 1.0601 six days ago, this currency pair is now testing the lower end at 1.0459.  The most important price to watch is 1.0405.  Speculators have also been pricing in the possibility of an interest rate hike more sooner than expected.


Yesterday’s daily closing price reversal bottom in the AUD USD was confirmed by the overnight rally.  This action is taking place on a major 50% price level at .8780.  The strong overnight action is likely profit-taking and position evening ahead of the new year.  With risk sentiment changing, look for selling pressure to resume after a short-term retracement.


A similar situation is developing in the NZD USD.  Traders are taking profits under thin trading conditions following a sharp sell-off.  The pre-hawkish central bank bottom at .7043 was broken a few days ago, this action puts a bearish spin on the market, but selling pressure is not likely to resume until after the holidays or until this currency pair mounts a sizeable retracement. 

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