The U.S. Dollar Index rose early Wednesday morning and held on to its gains throughout the trading session following better than expected U.S. Durable Goods and New Home Sales Reports. The falling Euro also contributed substantially to the Dollar’s rise while trading mixed versus the British Pound.
There were no fresh developments in the financial mess in Europe so traders used the good U.S. economic news as a reason to lean on the Euro. Last week’s optimism and robust closing price reversal bottom seem to be long forgotten. Although the reversal bottom at 1.2143 remains intact, it seems that this daily chart bottom is likely to fail now that traders have rejected the Euro at the .618 retracement level at 1.2345.
Traders seem to be too worried about contagion and hedge funds don’t seem too willing to let up on the selling pressure to trigger any kind of sustainable rally.
The chart pattern looks a little more optimistic for the GBP USD. On Monday the market held last week’s low at 1.4229. This action triggered a short-covering rally that put this market back on path for a potential test of the retracement zone at 1.4810 to 1.4947.
Fundamentally, traders seem pleased by the recent activity by the new government. Late last week the U.K. government announced plans to slash the budget and reduce its debt load. The fact that they are acting swiftly to fix the financial problems facing the country has made investors feel a little better about the long-term prospects for the Sterling.
Stronger equity markets helped to boost the USD JPY early during the trading session, but a late session sell-off in U.S. stock markets helped to turn this currency pair negative for the day. The Dollar/Yen is expected to remain weak as long as it remains under 91.61. Talk circulating that the Bank of Japan may be planning an intervention to weaken the Yen seems to be the only reason why the Dollar/Yen isn’t trading sharply lower.
The boost in equity prices and strong crude oil helped pressure the USD CAD until shortly after mid-session when stocks turned lower for the day. This action reversed the Canadian Dollar to down.
Rumors are out there that the Bank of Canada is poised to hike interest rates at its next meeting on Tuesday, June 1. Resistance has been established at 1.0739. Watch for a near-term correction to at least 1.0481.
A late session reversal in U.S. equity markets helped to weaken the Australian Dollar and New Zealand Dollar. Both of these markets remain sensitive to investor demand for higher risk assets.
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