The U.S. Dollar fell overnight as traders took advantage of the thin, holiday trading by taking profits after the almost month-long rally.  Demand for higher yielding assets also contributed to the weakness for the second day in a row buoyed by a rise in global equity markets. Finally, some of the selling pressure can be attributed to concerns over rising debt in the U.S.

Losses may be limited in the Dollar today due to the thin trading conditions and the release of a pair of positive economic reports.  Investors expect today’s S&P/Case-Shiller October Index of Home Prices and Conference Board confidence report to reaffirm the turnaround in the economy.

The developing chart pattern suggests that the Dollar is vulnerable to a substantial correction before fresh buying resurfaces.

The March Euro is up overnight boosted by a report which showed rising prices in Germany. The European Central Bank expects inflation to rise over the near-term, but remain under its 2% annual target.  A new main bottom has been formed at 1.4217.  The chart pattern suggests that upside momentum may be building with a possibility for a rally back to 1.4677 over the near-term.

The March British Pound popped to the upside overnight as traders returned to work after an extended holiday. This market was unable to hold on to its gains, however, and retreated to the downside.  Investors are still concerned about the U.K. budget deficit and struggling economy.  A small support base is being built on the charts, which suggests further upside is possible. The lack of fresh positive economic news and the New Year’s holiday could help to limit upside movement however.

The March Japanese Yen remains in a tight range but with a bias to the downside. Expectations of positive U.S. economic reports are helping to drive the Yen lower along with renewed demand for higher yielding assets.

The March Swiss Franc accelerated to the upside after breaking resistance at the old bottom at .9675. Upside momentum is building which could take this market up to a key retracement zone at .9806 to .9873.

The rally in the March Canadian Dollar continued overnight following Monday’s close over a key retracement price at .9574.  Last night’s action also took out a main top at .9609 to reaffirm the uptrend.  The Canadian Dollar is being boosted by expectations of a recovery in the U.S. economy and rising crude oil prices. A recovery in the U.S. economy is expected to be a positive influence on the Canadian economy.  Rising crude oil prices are expected to help the Canadian export surplus.

Global stock prices continued to rise overnight following a sell-off in the Dollar, signaling greater demand for higher yielding assets. The thought of a recovery in the U.S. economy is also contributing to the strength. Money is shifting out of U.S. Treasuries and into equities as end-of-the-year asset allocation continues.

Treasuries are trading lower once again as money is being shifted out of fixed income instruments and into higher yielding assets. A weaker Dollar is also contributing to the drop in March Treasury Bonds and March Treasury Notes.  Look for the T-Bonds to feel pressure as long as it remains under 115’08. Traders are also expressing concerns over the growing U.S. debt situation and the Treasury’s ability to service it.  
February Gold is trading lower despite the weaker Dollar. Thin conditions due to the shortened trading week ahead of the New Year’s holiday are helping to keep bullish traders on the sidelines. Regaining a key 50% level at $1107.40 could trigger a short-covering rally later in the day.

March Crude Oil has erased early selling pressure and is now in a position to take out yesterday’s high on its way to $80.00. Regaining an important resistance level at 79.27 is contributing to this morning’s strength. The prospect of an economic recovery in the U.S. is leading to speculation of greater demand for crude oil.  

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