The U.S. Dollar was trounced on Monday after the G-20 finance ministers failed to discuss the value of the Dollar at their week-end meeting, thereby, effectively offering no support. In addition, they decided to keep stimulus measures in place until the global economy can show sustained gains.
The real selling pressure hit the Dollar after an IMF report issued at the meeting stated that the Dollar has moved closer to “medium-term equilibrium” but “still remains on the strong side.” This statement was a shot at the Dollar being overvalued versus the Asian currencies, particularly the Chinese Yuan. Aggressive traders seized this moment as an opportunity to increase selling pressure on the Dollar overnight and throughout the New York trading session.
The fact that the G-20 Finance Ministers failed to talk up the U.S. currency came a few days after the Federal Reserve voted to leave interest rates at historically low levels, and it was reported the U.S. lost more jobs while boosting the jobless rate to a 26-year high. All of this added up to a perfect storm versus the Dollar. The Fed decision itself added up to a free ride for the Dollar bears until the Fed meets in December. With interest rates at historically low levels and plenty of liquidity available, traders should continue to treat the Dollar as the world’s funding currency throughout the foreseeable future.
Higher than expected German Industrial Production in September helped boost the EUR USD along with the G-20 news. The Euro chart indicates the main trend is up and within striking distance of the October high at 1.5063.
The November 3rd CFTC Commitment of Traders Report on British Pound futures, showed a major reduction in the number of short contracts. This is a sign that traders are shifting back toward demanding higher risk assets. It is also a sign that traders may believe the U.K. economy is stabilizing. Overnight the GBP USD took out the October high at 1.6691 and rallied higher during the New York session before backing off near the close. It now appears ready to challenge the July top at 1.7042.
Global demand for higher yielding currencies kept pressure on the U.S. Dollar and Japanese Yen for most of the day before the USD JPY was able to post a small gain. Fundamentally, the Yen should gain on the Dollar because Japan still maintains a slight interest rate advantage. Technically, the USD JPY traded inside of a retracement zone at 90.15 to 89.64 for most of the day.
Demand for higher yielding currencies pressured the USD CHF throughout the New York trading session. Last week the main trend turned down in this market. With downside momentum building, don’t be surprised if this pair returns to the low for the year at 1.0032.
Last week’s bearish Canadian unemployment report helped slow down the decline in the USD CAD early in the trading session before succumbing to selling pressure as the day wore on. The market accelerated to the downside when last week’s low at 1.0592 was violated. The main objective of this sell-off is 1.0522.
The AUD USD finished sharply higher. This rally was a continuation of last week’s late surge which was triggered by bullish comments from the Reserve Bank of Australia. The RBA increased its estimate for GDP while sending the market a signal that interest rates would likely continue to rise. Today’s rally was all about increased demand for higher yielding currencies. The charts indicate that .9329 is the next upside target while support moves up to .9105.
Appetite for risk helped drive the NZD USD through a resistance cluster at .7358 to .7375. The high for the day stopped at a .618 retracement level at .7423. The chart pattern suggests that a violation of this price could trigger an even further rally to a downtrending Gann angle at .7505.
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