Strong Overnight Dollar Rally indicates Risk Aversion is Back On
International Trading
THE TECHNIQUE OF GIVING A GOOD MASSAGE
14 years ago
Tuesday, September 14, 2010
, Posted by Usman Ali Minhas at 8:31 AM
The EUR USD is trading low and giving back some of yesterday’s gains after it was reported that the ZEW indicator of German economic sentiment fell sharply in September to -4.3 from 14 in August. Pre-report economist guesses were for a drop in the index to 9.0.
Despite the overnight weakness, the main uptrend does not appear to be threatened. Traders are basically using the report to pare positions after yesterday’s sharp move to the upside. Although the report showed economic sentiment had dropped more than expected, the odds remain low at Europe will experience a double-dip recession.
Technically, the Euro is likely to find support following a pullback into a retracement zone at 1.2793 – 1.2754. The charts still indicate a resistance cluster and potential upside target at 1.3049 by September 16.
Overnight the U.S. Dollar reached a new 15-year low versus the Japanese Yen on uncertainty regarding a leadership election in Japan. At issue was whether the current Prime Minister Kan would keep his job or not. Kan has been a staunch supporter of intervention. When it was all over, Kan was able to keep his job, but the December Japanese Yen has barely backed down from its overnight high at 1.2048.
The inability to break the Japanese Yen shows a lack of confidence in the government and the Bank of Japan’s ability to pull off a successful intervention. By taking the Yen to a new high, investors are saying the country’s leaders lack the clarity and conviction to weaken the currency.
The Dollar is trading better against most majors with the exception of the Japanese Yen, indicating that traders may take risk off the table today after yesterday’s strong demand for risky assets driven rally.
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