The U.S. Dollar finished mixed on Tuesday as investors for the most part looked for opportunities in more risky assets. U.S. equity markets rallied, increasing the desire to buy oversold higher-yielding assets such as the Australian and New Zealand Dollars, while selling the safe-haven Japanese Yen. Some Forex majors changed their daily chart trends to up indicating the potential for more upside movement while others appeared to be headed toward major retracement levels. For the most part the Dollar majors remained inside of their six-week ranges.
The USD CAD opened lower as expected and continued to weaken throughout the day. Risk came back into this market as investors felt confident once again in holding higher-risk, higher-yielding assets.
Yesterday's rise in equities along with a friendly Bank of Canada quarterly report helped the Canadian Dollar recover from its lowest level since May. A shift in sentiment triggered a reversal in the USD CAD on Monday. This pair had been rallying for about six weeks on concerns over the deteriorating global economy.
The Business Outlook survey from the Bank of Canada showed that business executives felt their sales would grow over the next year. In the survey, 61% of executives surveyed felt their sales would grow while only 23% were looking for a decline. The gap between the two figures suggests that sentiment in the business community may be shifting.
This news may be what the Canadian Dollar needs to put in a bottom, but improvements in the equity markets and crude oil are going to be necessary to help turn the current down trend back up.
Technically, the USD CAD closed yesterday in a position to turn the main trend back down on a move through 1.1437. The follow-through to the downside today triggered a change in trend. A failure to hold on to the major retracement zone at 1.6340 was also a bearish indicator. Expectations are for this break to move lower into 1.1253 to 1.1142 before it finds support. Watch for a technical bounce to the upside triggered by profit-taking or short-covering to trigger a possible retracement of the break from the top at 1.1724. If this pair is indeed turning bearish then new sellers should step in following another retracement to the upside.
The desire to hold on to Japanese Yen for protection diminished as demand for higher yielding assets increased. Yesterday's closing price reversal bottom in the USD JPY was confirmed by the follow-through rally today. The short-term range is 96.98 to 91.73. If the counter-trend rally continues tomorrow then look for a retracement to 94.36 to 94.98 before new shorts are entered.
Despite still remaining inside of its main range of .6590 to .6151, the NZD USD turned its main trend to up when it crossed a swing top at .6393. The close inside of the retracement zone at .6370 to .6422 indicates there is more upside potential. Higher equity and commodity markets helped to generate interest in this higher yielding currency.
At this time the major Dollar pairs remain range bound, but the inability of the Dollar to break through major resistance levels, coupled with the rallying equity markets, is putting the Dollar in a position to break substantially. The longer these markets remain in tight ranges the bigger the break in the Dollar. While no signal has been generated at this time, traders will most likely be watching the equity markets as to which way the Dollar will move. Needless to say, if earnings come out bad and equity markets fail at upside retracement levels then look for the Dollar to resume its uptrend.
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