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U.S. Dollar Support Continues to Erode

James Hyerczyk from ForexHound.com at 12/01/09


Support for the U.S. Dollar continued to erode this morning collapsing the Dollar Index to near last week’s low at 74.27. A break through this level sets up a further decline to 73.67.

News that Chinese manufacturing rose to a seasonally adjusted level of 55.7 helped drive the EUR USD over $1.51. Later this week, the European Central Bank is set to meet. Traders expect interest rates to remain unchanged, but the ECB should announce plans to gradually end government stimulus plans.

The GBP USD is up sharply at the mid-session. Although the market fell yesterday because of an unexpected drop in consumer confidence, it has rebounded today on the news that the U.K. housing sector is mounting a strong recovery.

The USD JPY is trading sharply higher after the Bank of Japan took action to weaken its currency. The Bank of Japan voted earlier this morning to leave interest rates unchanged while deciding to provide three-month loans to commercial banks at an interest rate of 0.10 percent. This action by the BoJ is expected to help stimulate growth and prevent deflation.

News that Russian will add the Canadian Dollar to its Forex reserves, along with higher equity and commodity markets, is helping to pressure the USD CAD. As demand for higher yielding assets increases, look for continued strength in the Canadian Dollar.

The Reserve Bank of Australia raised its benchmark interest rate by 25 basis points to 3.75 overnight as expected. The RBA also added in its statement that its tightening monetary policy should help to curb inflation. This news is limiting gains in the AUD USD as traders believe it sends a signal that interest rate hikes may level off. Stronger demand for higher yielding assets is the main reason for the rise in the Aussie at the mid-session.

The NZD USD is posting a strong gain today. Demand for higher yielding assets and oversold technical conditions are the main forces driving this currency today. The chart pattern suggests plenty of room to the upside following the recent nine-day slide. The first objective of .7272 was reached this morning. The next upside target is .7332.

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