With no major economic data to drive the Forex markets in any particular direction, some investors used today's Treasury auction and technical factors to drive the U.S. Dollar lower. Others were more sensitive to the rise in the commodity markets.
The Euro closed up against the Dollar today. Despite news that Ireland's debt rating was reduced because of credit and banking issues, this market remained firm throughout the day.
Fundamentally, traders were leveling off recent short positions because of the U.S. Treasury auctions. Investors were concerned that yields would rise which would increase the debt burden on the U.S. economy.
Last week a shift in sentiment took place which made the U.S. Dollar a more attractive investment. The change in sentiment occurred following the release of the better than expected U.S. Non-Farm Payroll report. This could mean that investors may begin to buy the Dollar and sell the Euro on the perception that the U.S. economy will recover from the recession first. Recently traders had been selling the Dollar on good news.
Technically, last week's reversal top was confirmed by follow through selling on Monday. Now it appears that this market will have to retrace the first leg down. If sellers come in at 1.4070 to 1.4133 then take this as a sign that this market is ready to roll over to the downside.
If a top is in then expectations are for a corrective move down to 1.3610. If the market takes out 1.4337 then 1.3804 will become a new higher bottom and the uptrend will resume.
The USD CAD broke on Tuesday as traders took profits following a five-day rally. The recent strength has been triggered by chatter that the Fed may have to raise rates as the economy begins to heat up. Today's weakness was triggered by speculation that the talk of a rate hike may have been premature. In addition, traders were hesitant to add on to positions in the face of another round of Treasury auctions.
Strength in the oil complex also drove the USD CAD lower. Global investors are betting on inflation and buying commodities to protect themselves. Heavy speculation by funds is helping to support the rise in crude oil. Traders will be watching inventory supply numbers for any sign of a drawdown. This would also be a signal that demand is increasing as the economy recovers.
Technically, last week's closing price reversal bottom was confirmed on Monday by the follow-through buying. The weak close led to another sell-off on Tuesday. The main trend remains down but holding a correction back to 1.1040 to 1.0980 will be a sign that the buying is greater than the selling at current levels.
Tuesday trading action took the market into this range, now it is up to the buyers to step up and start another up move. If buyers step in, then look for a rally to drive this market to at least 1.1413.
If this market fails to hold 1.0980 then look for a break to the low at 1.0783. A failure to hold this test would resume the downtrend and make 1.1290 a new main bottom.
In other Forex markets, the easing of political tensions helped revive the rally in the GBP USD. Better economic numbers are needed however to take this market to the 1.6663 top.
Increased trader appetite for higher yielding assets helped support the rise in the AUD USD and NZD USD. Both of these markets are coming off weekly closing price reversal tops which have been confirmed. The current retracement must fail or these pairs may start to decline.
The next two days will be critical to the U.S. Dollar. Traders will be watching to see if yields remain reasonable during the next two auctions. Any substantial spike in yields may put pressure on the Dollar as traders will question whether the U.S. can pay its debt. Although the financial markets are indicating that the Fed is not likely to raise rates soon, this rumor may not go away as it still may prove to be true if another economic report shows the U.S. economy is beginning to recover.