Daily Forex Commentary for June 26, 2009

The U.S. Dollar weakened on Thursday against some of the major Forex markets. Traders attributed the cause of the weakness to the thought that U.S., European and Chinese central bank stimulus plans may finally be working to turn the global economy around.

Thoughts of a global economic recovery helped increase demand for higher yielding assets on Thursday. Other than the action in the Australian and New Zealand Dollars however, today’s up move does not look like it is a threat to the U.S. Dollar’s uptrend.

Despite talk that traders were buying because of a possible recovery in the global economy, today’s action did not look like it represented a change in trend, but rather just a knee jerk reaction following yesterday’s rally in the Dollar. The charts indicate it is going to take a few more days of lower-highs and lower-lows to turn the Dollar down.
Today’s U.S. Treasury auction drew greater demand than expected. This helped push yields down which weakened the Dollar. Yesterday the European Central Bank lent about $621 billion for the next 12 months to help improve the economy. This action was perceived as a positive attempt to stimulate the economy and strengthen the Euro. The People’s Bank of China agreed to maintain a “moderately loose” monetary policy in an effort to support a global recovery. These three factors contributed to the weakness in the Dollar today. Whether today’s move represents a change in trend will be determined by the trade the next few days.

The desire for higher yielding assets drove the Australian and New Zealand Dollars higher on Thursday. Both of these markets are in a position to challenge their highs for the year. It is going to take a follow-through rally on Friday to trigger a breakout. Lately these two markets have not been able to sustain their rallies, which are giving these markets a distributive pattern.

If these two pairs cannot follow-through tomorrow and close sharply lower then consider the attempted rally a failure and look for the start of a break. Fundamentally, without help from higher equity and commodity markets then look for the start of a substantial decline. The Euro is still in a lower-top, lower-bottom formation. The GBP USD is having trouble with the 1.6600 area. The USD CHF is strengthening along with the USD CAD. All of these chart patterns are suggesting the Dollar is poised to move higher.

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