The U.S. Dollar was under pressure for most of the day on Wednesday.  Strong appetite for risky assets drove traders into equities which triggered a surge in higher yielding currencies.  The rally in stocks began slightly before the opening following better than expected earnings from Wells Fargo Bank and Morgan Stanley.  The Fed’s Beige book stabilized the Dollar.

Late in the trading session, equity market support began to erode and the market accelerated to the downside.  This triggered a strong short-covering rally in the U.S. Dollar which took it off its 14-month low.  Traders blame the weakness in stocks on a downgrade of Wells Fargo to “sell” by analyst Dick Bove and stories that Wal-Mart executives are looking for a “tough” holiday spending season.

The EUR USD finally poked through the psychological 1.5000 barrier after several attempts failed earlier in the week.  Traders took the “toe in the water” approach as this priced was reached because of the fear of a major seller up above.  Traders have been reluctant to buy the Euro at current levels because they fear a verbal intervention by the European Central Bank.  Earlier in the week, the ECB expressed concerns about the rise in the Euro and its possible detrimental effects on Euro Zone exports.  The price level is not the problem with this currency; it is excessive volatility that ECB officials are worried about.

The GBP USD opened higher and accelerated to the upside as demand for higher yielding assets rose.  The initial move in the British Pound was triggered by positive news from the minutes of the Bank of England’s last meeting.  The minutes showed that the BoE members were unanimous in their decision to keep the asset buyback program at current levels.  Many traders see this as a sign the program is working and that additional stimulus may not be necessary.

The USD JPY was positive today.  No real news came out to affect this currency pair.  This pair has been in a range for a few weeks.  Conflicting comments recently from Japanese Finance Minister Fujii have traders a little confused at this time.  Fujii doesn’t mind a higher Yen as long it is based on sound fundamentals.  His main concern is excessive speculation and volatility.

Higher crude oil and equity prices early in the trading session helped boost the Canadian Dollar.  Some of the move was attributed to short-term oversold conditions following yesterday’s hard break.  The USD CAD turned the main trend up on the daily chart yesterday.  The bottom was put in last week when Canadian Prime Minister Harper expressed concerns about the rapid rise in the Canadian Dollar.  Yesterday the Bank of Canada said the rally in the Canadian Dollar offset recent economic gains.  The primary issue in this market is valuation.  An overpriced currency is expected to hurt the economy.  These verbal interventions should serve as a warning to USD CAD bears that the government is prepared to take action.  

Demand for higher yielding currencies helped boost the AUD USD for most of the day on Wednesday.  Higher equity markets in the U.S. encouraged traders to once again trade the long side of the Aussie after a two day setback.  Selling pressure has been on the Australian Dollar since the release of the minutes from the last Reserve Bank of Australia meeting showed no evidence of a possible 50 basis point rate hike in November.  Traders had bid up the AUD USD in anticipation of this hike.  The weak close in the stock market could lead to follow-through selling pressure tonight and tomorrow.  This could encourage profit-taking in the Aussie.

Positive comments from a key Reserve Bank of New Zealand official gave the NZD USD a boost today. The RBNZ said that the price of the New Zealand Dollar will have no effect on whether the central bank raises rates.  This served as a sign that the RBNZ is perhaps considering raising interest rates sooner than expected.  Like the Aussie, this currency is going to take direction from the U.S. equity markets.  If U.S. markets weaken, then look for a drop in demand for higher yielding assets and the start of a break in the Kiwi.

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