The U.S. Dollar is extending gains against the September Japanese Yen this morning after weak U.S. economic data pressured riskier assets. Heavy selling in the global equity markets is sending traders into the safety of the greenback.

Yesterday’s Fed announcement is also contributing to the weakness. The U.S. Dollar actually began showing strength on Wednesday after the U.S. Federal Reserve said it would extend its holdings of long-term government bonds using the program called Operation Twist. Additionally, Fed Chairman Ben Bernanke left the door open for additional stimulus if necessary, citing expectations of a poor employment outlook and weaker housing market.

Traders also remain skeptical about Europe believing that Spanish banks are a major problem with investor confidence at this time. The results of an audit of the Spanish banking system due later Thursday are expected to show the need for capital. Some estimates show the need for $76 billion to $101 billion in recapitalization.

Besides the worsening situation in Europe, traders are also reacting to the drop in manufacturing activity as reported by the Federal Reserve Bank of Philadelphia. This report said manufacturing activity fell to negative 16.6 in June, its lowest level since August 2011, from negative 5.8 in May. Finally, news that manufacturing in China showed contraction in June may have set the tone for the day in overnight trading.

James A. Hyerczyk Forex, Futures & Equity Analyst

Daily September Japanese Yen Pattern, Price & Time Analysis

Technically, the September Japanese Yen broke through uptrending Gann angle support from the 1.1915 bottom posted in March. This support line is at 1.2605. Additionally, the futures contract took out a swing bottom at 1.2547, changing the main trend to down on the daily chart.

Based on the main range of 1.1915 to 1.2895, expectations are for a potential break into the retracement zone at 1.2405 to 1.2289.

Traders should continue to look for more downside pressure as long as investors continue to dump higher yielding assets in favor of the U.S. Dollar.

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