The U.S. Dollar finished higher on Tuesday against most majors as traders once again curtailed demand for higher risk assets because of a weaker than expected U.S. Consumer Confidence Report and another break in the equity markets. Investors are shying away from risky asset trades because of perceptions that the global economic recovery may not be as robust as previously estimated.
The EUR USD lost ground today because of falling demand for higher risk assets. Comments from European Central Bank President Trichet expressed his concerns about central banks ending their stimulus plans too prematurely. The main trend turned down late last week and traders seem content with pushing this market down to a key retracement zone at 1.4444.
The GBP USD gained ground today on the heels of two friendly U.K. economic reports. Today it was reported that U.K. Retail Sales increased to its highest level in five months. Another report showed a better than previously estimated second quarter U.K. GDP Report. Shorts covered on the news and drove the British Pound higher. The rally, however, is expected to be short-lived since these two reports are not enough to turn the trend around in the Pound. Longer-term traders believe that the Bank of England will have to reduce its stimulus program before this market can mount a strong rally.
Oversold conditions and the possible end to this month’s repatriation by Japanese companies helped support the USD JPY today. Technically this currency pair formed a closing price reversal bottom on Monday that was confirmed by today’s early sell-off. Last week the Japanese Finance Minister announced that it would do nothing to curtail the appreciation in the Yen. Today, however, it clarified its position by stating that will stand aside as long as trading conditions remain normal. Abnormal trading conditions could force the BoJ to take action to curtail volatility.
The sell-off in the equity markets and lower energy prices put pressure on the Canadian Dollar. Upside momentum is building in the USD CAD which could help launch a strong rally to 1.1124 over the near term. Traders expect the Canadian economy to show weakness because of the recent drop in crude oil prices. Crude oil makes up a large portion of the Canadian economy.
The USD CHF posted a gain on Tuesday. Traders are anticipating a possible intervention by the Swiss National Bank. The recent rise in the Swiss Franc versus the Euro could be raising some concerns with the SNB. They want to prevent a rapid rise in the Swiss Franc because of the possibility of deflation.
The AUD USD and NZD USD traded in a tight range under choppy conditions. Less demand for higher yielding assets is putting downside pressure on both of these markets while talk of possible interest rate hikes is providing the support. The weakest market is the Aussie because of technical factors.
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