August 11, 2009

The U.S. Dollar posted gains against most major currencies on Monday in a continuation of the move which began on last Thursday and accelerated on Friday following a better-than-expected U.S. Non-Farm Payrolls Report.

This strength may continue overnight but a consolidation pattern could begin as early as tomorrow morning in New York when the Fed begins its two-day Federal Open Market Committee meeting.

Forex traders are beginning to think that market participants are beginning to shift away from a risk appetite driven scenario to a more traditional fundamental scenario where the currency representing the strongest economy dominates the trade. In this case, the perception that the U.S. economy will lead the world out of its recession is making the Dollar appear more desirable.

The GBP USD confirmed last week's technical reversal top with a strong follow-through to the downside. Not only is the stronger U.S. economy a bearish factor on the British Pound, but last week's decision by the Bank of England to expand its asset buy-back program is also being viewed as a negative factor.

Trader perceptions that the U.S. economy is stronger than the Euro Zone economy and that the U.S. will pull out of the recession before the Euro Zone helped pressure the EUR USD today. Technically the Euro saw selling because of the confirmation of last week's closing price reversal top. At a minimum, this type of pattern usually triggers an initial break of 2 to 3 days before retracing to test the high.

The USD JPY gained ground on Monday. The developing strength in the U.S. economy is making the Dollar more attractive as the Japanese economy continues to struggle to find its footing. Tomorrow the Bank of Japan will announce its interest rate decision. It is expected to keep interest rates unchanged.

The U.S. Dollar gained ground versus the Swiss Franc. Investors were encouraged to buy the Dollar on expectations of a recovery in the U.S. economy will lead to higher, more attractive Treasury yields.

Last week's closing price reversal bottom in the USD CAD was confirmed by today's rally. Last Friday's better than expected U.S. employment report coupled with Canada's worse than expected report is attracting fresh buying and short-covering.

The higher yielding AUD USD and NZD USD finished mixed against the Dollar. If the U.S. equity markets can top out and develop a down trend then look for a much harder break in these two currencies as traders will begin to demand less risk. Higher treasury yields or speculation that the Fed may announce an exit strategy will also have a bearish influence on these two Forex pairs.