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U.S. Dollar Getting Trounced after G−20 Offers No Support

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


The U.S. Dollar is getting trounced overnight after the G-20 finance ministers failed to discuss the value of the Dollar, thereby, effectively offering no support.  In addition, they decided to keep stimulus measures in place until the global economy can show sustained gains.


The real selling pressure hit the Dollar after an IMF report issued at the meeting said, “the Dollar has moved closer to “medium-term equilibrium” but “still remains on the strong side.”  This statement was a shot at the Dollar being overvalued versus the Asian currencies particularly the Chinese Yuan.  Aggressive traders seized this moment as an opportunity to increase selling pressure on the Dollar.


The fact that the G-20 Finance Ministers failed to talk up the U.S. currency came a few days after the Federal Reserve voted to leave interest rates at historically low levels, and it was reported the U.S. lost more jobs while boosting the jobless rate to a 26-year high. All of this added up to a perfect storm versus the Dollar.  The Fed decision itself added up to a free ride for the Dollar bears until the Fed meets in December.  With interest rates at historically low levels and plenty of liquidity available, traders should continue to treat the Dollar as the world’s funding currency throughout the foreseeable future. 


Higher than expected German Industrial Production in September is giving the EUR USD an additional boost.  The Euro chart indicates the main trend is up and within striking distance of the October high at 1.5063.


The CFTC Commitment of Traders Report on British Pound futures showed a major reduction in the number of short contracts. This is a sign that traders are shifting back toward demanding higher risk assets.  It is also a sign that traders may believe the U.K. economy is stabilizing.  Overnight the GBP USD took out the October high at 1.6691 and now appears ready to challenge the July top at 1.7042.


Global demand for higher yielding currencies is keeping pressure on the U.S. Dollar and Japanese Yen.  The USD JPY is down slightly however as the Yen still maintains a slight interest rate advantage.  Technically, the Yen is trading inside of a retracement zone at 90.15 to 89.64.


Demand for higher yielding currencies is pressuring the USD CHF.  Last week the main trend turned down in this market.  With downside momentum building, don’t be surprised if this pair returns to the low for the year at 1.0032.


Last week’s bearish Canadian unemployment report helped boost the USD CAD which may be why the Canadian Dollar is not participating in a big way in today’s flight to higher risk assets rally.  The chart pattern suggests that this market could accelerate to the downside if last week’s low at 1.0592 is violated.  1.0545 is the first downside objective.  This is followed by a retracement level at 1.0522.


The AUD USD is trading sharply higher. This move is a continuation of last week’s late rally which was triggered by bullish comments from the Reserve Bank of Australia.  The RBA increased its estimate for GDP while sending the market a signal that interest rates would likely continue to rise.  The charts indicate that .9329 is the next upside target while support moves up to .9105.


The NZD USD rallied back to a major 50% price at .7358.  Gann angle resistance is at .7375.  This forms a key resistance cluster.  Upside momentum is expected to overtake this zone on its way to the next resistance level at .7423.


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