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Forex Technical Report

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Dollar Plunges as Traders React to Fed Minutes; RBA Comments

Wed, Nov 25 2009, 14:06 GMT
by James Hyerczyk

ForexHound.com

The U.S. Dollar is down sharply across the board overnight as investors are reacting to yesterday’s U.S. Federal Reserve minutes and comments from the Reserve Bank of Australia.

The Forex markets are having a delayed reaction to the release of yesterday’s Fed minutes which showed the decline in the Dollar was not a major concern.  The minutes basically stated the weakness in the Dollar is tolerable as long as it occurs in an orderly fashion. 

Comments from the RBA’s Deputy Governor Battellino also drove up demand for risk appetite.  In a statement to Australian housing conference attendees he said, “With the economy having only recently entered a new upswing, it is reasonable to assume that we will see this growth extended for a few more years yet”.

This week’s holiday shortened activity has no doubt left Forex traders starving for news so today’s reaction to these two news items may be a little exaggerated.  The Fed’s minutes in my opinion offered nothing new.  Bernanke basically said the same thing last week but also offered that the decline in the Dollar would not be a factor unless it interfered with the Fed’s mandate to shore up employment and maintain price stability. 

The weakness in the Dollar helped drive the EUR USD through the old top at 1.5063 to a new high for the year.  Traders are now waiting to see if there will be a reaction from the European Central Bank regarding the rise.  The ECB may become concerned that the high priced Euro will curtail Euro Zone economic activity.

The GBP USD is up sharply as traders are reacting positively to the upward revision in U.K. 3rd quarter GDP.  It was reported overnight that GDP shrank by only 0.3%.  The previous estimate was for a fall of 0.4%.

The Dollar also broke parity with the Swiss Franc, falling below 1.00 to an overnight low at .9994.  The USD JPY traded down to a new low for the year at 87.39.

The positive RBA comments are helping to drive the AUD USD and NZD USD sharply higher.

Published on  Wed, Nov 25 2009, 14:08 GMT