The U.S. Dollar finished lower against most major currencies. Today's weakness was triggered by a follow-through rally in the equity markets which led to renewed interest in higher yielding assets.
The EUR USD finished up on Thursday. Volume was light but traders nonetheless were interested in the long side of the Euro as the U.S. equity market racked up gains throughout the day. The main trend is down in this market, but the action over the past few days indicates that buying may be greater than the selling at current levels.
Concerns over the growing U.K. deficit kept downside pressure on the GBP USD throughout the day. This currency pair attempted to rally several times along with the other currencies but each rally was met with selling pressure as some investors focused on the fundamentals.
The stronger stock market renewed interest in the carry trade, putting downside pressure on the Japanese Yen. A breakout to the upside in the equity markets over the next few days should trigger fresh buying in the USD JPY. Tomorrow could be a volatile day because of equity option expiration.
Speculation that a turnaround will lead to greater demand for energy and a firmer stock market helped fuel the break in the USD CAD. Yesterday's news that crude inventories had dropped helped set off a short-covering rally in the Canadian Dollar. Today's action looked as if fresh buying had returned.
Speculators supported the higher yielding AUD USD and NZD USD in anticipation of an upside breakout of the U.S. stock markets. Although these two currency pairs seem poised to breakout to the upside, gains could be limited tomorrow because of the U.S. open expiration. Thin market conditions coupled with option expiration could lead to wide swings. Aussie and Kiwi traders should watch the equity markets for direction.
Although equity markets have looked stronger this week, the rallies we have been seeing versus the Dollar still appear to be short-covering rather than fresh buying. The technical picture is still indicating that the Dollar is in an uptrend. Foreign currency bulls seem to be on the sidelines waiting for better economic news before committing to the long side.
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