The U.S. Dollar closed lower across the board with no sign of a let-up in this trend.  Last week’s mini rally triggered by Bernanke’s comments about a tighter monetary policy have been erased.

Today’s FOMC Minutes Report indicated that the Fed is interested in keeping interest rates low and expanding the mortgage buyback program.  It cited “the cost of the economy turning out to be weaker than anticipated could be relatively high.”  This comment means the Fed doesn’t want to raise rates or end stimulus until it is certain that the recovery is sticking.  This was basically another way to restate what Bernanke said last week when he commented that the Fed would move toward a tight monetary policy once the economy is on solid ground.   The U.S. Dollar spiked lower on the news as some traders have been speculating that the Fed was looking to put an end to its easy money programs.

Intervention by other central banks to control the rise in their currencies may be the only way to combat the fall in the Dollar. The New Zealand, Japanese, Canadian and Euro Zone central banks have expressed the most concerns about the rapid rise in their currencies.  Can a concerted intervention be in the offing in the near future to boost the Dollar?

Lower T-Bond and T-Note markets along with the divergence from the Dollar by gold today could be indicating that the trend in the Dollar is getting ready to turn.  Watch to see if gold follows through to the downside after today’s closing price reversal top.

The EUR USD pushed to a new high for the year today.  Traders are ignoring weak economic data and instead are focusing on better times ahead.  One has to wonder how high the Euro will be allowed to move before the European Central Bank issues, at the very least, a verbal intervention.

Yesterday’s closing price reversal bottom in the GBP USD was confirmed today.  This triggered a surge to the upside which sent the market beyond a normal retracement level at 1.5911 to 1.5959.  Traders will be watching carefully to see if this move leads to a change in trend to the upside as a rally at this time will be contrary to the fundamentals which are still indicating a weak economy.  If this rally is only a short-covering rally, then look for selling pressure to begin tomorrow or Friday.

The USD JPY survived a serious threat to accelerate to the downside by holding a key retracement area at 89.22 to 88.93.  It looks as if buyers were waiting inside of this zone, triggering a late session rally.  Although this market can sit inside of the 87.99 to 90.44 range for some time, it is becoming clear that a breakout over 90.44 will turn the trend to up.  Another reason for a possible rally is concern that the Bank of Japan will intervene if a rally in the Yen becomes too volatile.

The Canadian Dollar is also facing the threat of intervention because of its possible effects on the Canadian economy.  Yesterday Canadian Prime Minister Harper expressed concern that the rapid rise in the Canadian Dollar would lead to a drop in Canadian exports.  The closer the Canadian Dollar gets to par with the U.S. Dollar, the greater the chance of an intervention by the Bank of Canada.  Watch for intraday reversals to the upside in the USD CAD to be the first sign that a short-term bottom may be forming.

Demand for higher yields helped drive up the AUD USD.  In addition, this currency received support on speculation of greater growth in China.  The implementation of the Chinese stimulus plan late last year is probably the biggest reason why Australia was the first major country to recover from poor economic conditions.

The NZD USD shrugged off talk of a possible divergence between it and global equity markets and closed in a position to take out the high for the year at .7453.  The rate of the next move up may be slower than previous moves because of the threat of an intervention by the Reserve Bank of New Zealand.  The RBNZ is concerned that the current price level in the Kiwi may be detrimental to the country’s recovery from the recession.  Traders will be tentative about buying strength until the economic recovery is confirmed by strong economic reports.


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