The U.S. Dollar ended a choppy week on a weak note as China renewed talk of a super world currency to replace the Dollar as the world's reserve currency. They also called for the IMF to manage the funds.
This is a proposal that has been brought up at least twice before by the Chinese and Russians and does not seem to want to go away. Friday's reaction was subdued compared to previous announcements which may be an indication that traders want to see more meat to the proposal before committing in a big way.
The Forex markets took precautions on the news by selling Dollars, but the subsequent rallies were capped by previous tops. The main issue that has to be considered is whether the People's Bank of China is in favor of this major change or does the Chinese government want to make the move.
If you pay close attention to the news story, you will notice that it is the People's Bank calling for the change, not the government. Like everything in China, the government eventually gets its way so I would not worry too much about the Dollar losing its value as the world's reserve currency for a long-time.
Earlier in the week the FOMC had its monthly meeting. It left interest rates at historically low levels as expected. The big change was the phasing out of the quantitative easing plan. By making this move the Fed is telling the world that it is not too worried about a rise in interest rates at this time.
This move by the Fed could eventually help firm interest rates which should keep upside pressure on the Dollar.
The strong close in the EUR USD has this pair in a position to change the trend back to up on the daily on a trader through 1.4177. This move would put this market in a position to challenge the recent major top at 1.4337. Although the charts will indicate strength, traders should watch the order flow as these areas are approached. Some traders believe that the European Central Bank will not tolerate prices at these levels for a prolonged period of time because of the damage high price can do to European exports. Watch for negative comments from the ECB if the Euro gets too hot.
Several weeks ago the Canadian Dollar was rallying out of control, but has since then corrected substantially. The main cause of the break was a comment from the Bank of Canada regarding the rapid appreciation of the Canadian Dollar. Traders feared that the BoC would intervene to drive the Canadian Dollar lower. I don't know for sure what the European Central Bank has up its sleeve to prevent a rapid appreciation in the Euro, but I am fairly certain that they will do something to prevent a high-price Euro from hurting Euro Zone exports.
Speaking of central bank intervention, the question remains in the USD CHF market, did the Swiss National Bank intervene or not? Looking at the speed of the correction to the downside following the attempted upside breakout, one has to wonder if the SNB actually intervened or if traders panicked on a rumor. Based on the main range of 1.0590 to 1.1020 look for the retracement zone at 1.0805 to 1.0754 to offer important clues as to which way this market is going to move.
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