Surges in natural gas, crude oil and gold helped put the Canadian Dollar in a strong position early in the trading session until Canadian Prime Minister Harper expressed his concerns about the effects of a strong Canadian Dollar on the economy.  This breaking news helped trigger a short-covering rally and formed a closing price reversal bottom.  This pattern is likely to trigger a 2 to 3 day retracement to the upside.

The U.S. Dollar fell sharply on Monday as bullish traders pared positions on the thought that the U.S. economy will not be able to keep pace with the global recovery.  Before the Forex markets opened, China solidified itself as the driving force behind the global economic recovery when it reported more upbeat export news.

The Greenback traded sharply lower as China reported a 17.7% increase in exports and a 55.9% increase in imports.  The surge in exports was the first rise in 14 months.  Pre-report guesses were for only a 4% increase. Due to the timing of the report, and its extreme bullishness, the Australian and New Zealand Dollars both had rare gap openings Sunday night.

Dollar bulls were still reeling from the soft U.S. Non-Farm Payrolls report on Friday.  Traders had been looking for the report to show that job losses had remained flat or perhaps that new jobs had been created during December.  Instead the government reported that another 85,000 jobs were lost.  

Adding more fuel to the bearishness were comments from St. Louis Fed President James Bullard who signaled that interest rates weren’t going to move higher over the near-term.  Bullard said, “interest rates may remain low for quite some time.”  He also added that the Fed’s zero interest rate policy is “on hold.”  He could not have made his position any clearer. In addition to talking about the future direction of interest rates, Bullard said the Fed faces a challenge when adjusting its asset-purchase program because of the possibility of inflation.

Monday’s light economic calendar gave traders a chance to digest Friday’s Non-Farm Payrolls report and its impact on the economy. Bets were placed on a weaker Dollar and renewed interest in higher yielding assets as evidenced by today’s early surge in equity and commodity prices.  Traders should note that the soft employment report has not changed the outlook for a recovery, but it has pushed back the Fed’s timetable for increasing interest rates.

The technical outlook is as follows:

The cash U.S. Dollar Index is in a downtrend.  Expectations are for the weakness to continue until this index reaches a major 50% price level at 76.31.

The Euro broke through Gann angle resistance at 1.4524.  It also broke out to the upside after forming a support base.  The first upside target is 1.4680, followed by 1.4790.

The GBP USD broke away from a retracement zone at 1.6036 to 1.5988.  A new higher bottom was also formed at 1.5895.  The main trend will turn up on a trade through 1.6240.  The first upside target is 1.6355, followed by 1.6478.

The USD JPY traded weaker after confirming last Friday’s closing price reversal top on the overnight move through 92.28.  Selling pressure put this market on the bearside of an uptrending Gann angle at 92.33 tomorrow.  This is a sign of weakness. The chart indicates that there is room to the downside with 89.30 to 88.24 the next target.

The USD CHF broke an uptrending Gann angle at 1.0218 and a 50% price at 1.0212. This move helped to accelerate the break to the .618 retracement level at 1.0143 where it found support throughout the day.  The next downside target is a slower moving Gann angle at 1.0068.  

Losses were limited because of the threat of an intervention by the Swiss National Bank.  Although this action will be meant to curtail the Swiss Franc’s rise versus the Euro, it should also have a positive effect on the U.S. Dollar.  Overnight, Swiss central bank President Hildebrand said intervention was possible to prevent “any excessive appreciation.”  He also added that the SNB will “monitor exchange market developments very closely.”

The surge in China’s exports helped trigger a gap higher opening in the AUD USD while triggering talk of a move to parity with the U.S. Dollar.  An uptrending Gann angle held as support at .9174 today.  Look for higher markets as long as this angle remains intact.  On Tuesday, it moves up to .9214.  

The NZD USD also gapped higher on the good news from China.  Some traders feel that the jump in Chinese demand could support the whole Pacific region.  This market had very little follow-through to the upside during the New York session and failed to accelerate after regaining Gann angle support at .7410.  Tomorrow this angle moves up to .9450.

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