Demand for higher risk assets supported a rally today in the EUR USD.  Look for this trend to continue as long as U.S. interest rates remain relatively low compared to the Euro Zone’s rates.  Traders are also becoming more confident that the Euro Zone economy will strengthen at a faster pace than the U.S. economy.  Traders have to be careful that the Euro doesn’t spike higher because the European Central Bank is becoming concerned about the rapid rise in the currency and its possible negative effects on exports.  Bullish traders should begin to watch for a “verbal intervention” if prices rise too much or get too volatile.

Economic pressures continued to weigh on the GBP USD.  Traders have become convinced that the U.K. economy is still struggling and likely to lag the U.S. in the economic recovery process.  Investors are looking for interest rates to continue to remain low.  In addition, expect the Bank of England to continue to apply its quantitative easing program.

The USD JPY posted a slight gain, highlighted by a two-sided trade.  The Dollar started out strong versus the Yen after Japanese officials warned against shorting the Dollar at current levels.  Traders seem to be concerned that the Bank of Japan will take action to prop up the value of the Dollar if the Yen continues to strengthen and are being tentative about pressing the Dollar lower on weakness.  This usually means bullish Yen traders will more likely look to buy dips rather than strength.  The trend is down in the USD JPY, but traders seem to be reluctant to push it lower on weakness.  Be careful not to get trapped selling into weakness.

Last week’s bullish Canadian unemployment report continued to exert its influence on the USD CAD today.  Additional downside pressure was applied by demand for higher risk assets.  Higher equity prices and strong crude oil provided additional support to the Canadian Dollar.  Technically, the USD CAD is getting close to oversold.  The fundamentals, however, support lower prices.  If the Canadian Dollar moves up too far, too fast or gets too volatile, then look for the Bank of Canada to attempt to limit gains with a “verbal intervention.”

Upside momentum slowed down in the NZD USD today as bullish traders took a breather ahead of tonight’s New Zealand Retail Sales Report.  Traders are looking for a 0.5% rise in retail sales in September, but are being cautious because of a negative surprise in last month’s report.  The Reserve Bank of New Zealand expressed concern last week about the value of the New Zealand Dollar.  They fear the rapid rise in the Kiwi may actually be detrimental to the economic recovery in New Zealand if it begins to hurt export sales.  This is another reason why gains were limited today.

The AUD USD, on the other hand, posted a strong gain on Monday.  Demand for higher yields helped drive up the Aussie although gains were probably limited by today’s low volume.  Traders are buying the Aussie in anticipation of another interest rate hike by the Reserve Bank of Australia at its next meeting on November 3.  


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