A rally in U.S. equity markets fueled by oversold conditions and a surge in M&A activity helped trigger an intraday break in the Dollar early in the trading session. Late in the session the Dollar picked up some strength and the Dollar finished mixed against most majors by the close.
There were no major reports today which could have contributed to the lackluster trade. In addition, traders may already be positioning themselves for Friday's U.S. Non-Farm Payrolls Report. The Dollar was strong against the European currencies but a little weaker versus the Asian-Pacific markets.
The EUR USD finished the day lower but close to the middle of the day's range. Overnight this market felt pressure, but firm U.S. equity markets since the opening helped to drive up demand for higher yielding assets. In addition, some say traders are beginning to price in the possibility of a rate hike by the European Central Bank sooner than later. This could have helped to limit losses.
Last week's weakness in the GBP USD continued during the early part of today's New York session, but the British Pound gradually gained strength after the U.S. equity markets began to strengthen. Oversold conditions also contributed to the rally. Gains are likely to be limited since the U.K. fundamentals and the Bank of England seem to want to push the British Pound lower.
The USD JPY gradually picked up strength throughout the trading session after a hard spike to the downside. Fundamentally, traders are expected to continue to take the Japanese Yen higher. The Japanese government appears to be allowing the Yen to rise without the threat of intervention. Today's technical reversal up could trigger the start of a 2 to 3 day short-covering rally before the downtrend resumes.
Increased demand for risk helped support the AUD USD. Last week's closing price reversal top is still intact and could help to limit gains. The movement in the equity markets is likely to dictate the direction in the Aussie. Traders may also be trying to price in the possibility of an interest rate hike before the end of the year.
The NZD USD traded flat today This market was able to maintain its gains last week despite the weakness in the equity markets which indicates strong buying interest. This could be a sign that traders are building in a possible rate hike. This would be strong speculation as recent comments by the Reserve Bank of New Zealand indicate that this is unlikely.
Stronger equity markets and firmer crude oil put pressure on the USD CAD throughout the trading session. Although there was some give back today, the momentum is up and the market is nearing a potential breakout point at 1.1124. This means that the current weakness is likely to be limited to one or two days.
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