The U.S. Dollar traded down against all major currencies, driven lower by increased demand for higher risk assets. Risk appetite was strong this morning following the news that last night’s Spanish Bond auction overnight was oversubscribed, easing tensions about renewed sovereign debt issues in the Euro Zone.
This morning’s good news erased worries that the Dollar was preparing to strengthen after several consecutive weak days. The U.S. Dollar edged slightly higher against most major currencies on Wednesday as investors pared positions in higher risk currencies on economic worries and Spain concerns. Now that tensions have eased about Spain, traders turned their focus on Thursday’s slate of U.S. economic reports.
After the early morning rally, triggered by the Spanish bond story, the Euro surged to the upside after a series of disappointing U.S. economic reports. This move surprised traders since recent poor economic reports had triggered a flight to safety rally into the Dollar. Thursday’s move helped scare weak shorts out of the market, thereby extending the early rally.
Technically, the Euro closed in a solid position and seems to be poised to breakout over the last main top at 1.2453. This move will turn the main trend up for the first time since early April. Following a change in trend to up, look for the rally to continue to the next main top at 1.2671, but the ultimate target remains a major 50% price level at 1.2784.
The GBP USD confirmed Wednesday’s closing price reversal top but quickly turned higher as traders reacted to mixed news about the U.K. job situation and the bullish news from Spain.
Although momentum was strong early in the session, it tapered off as the session continued with the Sterling finding resistance at a 50% price level at 1.4810. The close over this level is friendly and it indicates a potential drive to the next resistance level at 1.4947. Thursday’s trading action suggests that with the main trend now up on the daily chart, investors will be looking to buy dips.
The USD JPY lost ground on Thursday as traders reacted negatively to the increase in U.S. Weekly Jobless Claims. Investors read this as a sign that the U.S. economy was still weak, driving funds into the lower-yielding Japanese Yen. Later in the morning, the Japanese Yen received an additional boost after the Philadelphia Fed reported a drop in regional manufacturing and the Conference Board said it expects lower growth for the rest of the year. Traders flocked to the Yen for safety as the bearish reports were a strong indication that the Fed will keep interest rates low until at least the first quarter of 2011.
The stronger Euro helped push down the USD CHF because it relieved pressure on the Swiss National Bank to continue to intervene in order to weaken the Swiss Franc and protect the Swiss export market. Technical factors contributed to the weakness as two key support areas were taken out early this morning, triggering an acceleration to the downside. The charts indicate that 1.1064 is the next downside target.
There was very little moment in the commodity-linked Australian, New Zealand and Canadian Dollars. Despite stronger equity markets early in the treading session, traders for the most part shied away from risky currency markets. Weak U.S. economic data most likely contributed to the lack of buying in these currencies.
The AUD USD is nearing a key resistance level at .8727. The current rally looks tired which could mean that another round of weak economic data will send it lower. The chart indicates there is room to the downside with .8377 the next likely downside target.
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