The USD JPY strengthened for a second day as traders turned a little more optimistic about a U.S. economic recovery. Traders are looking for a slight improvement in the U.S. jobs market this Friday. This is helping to support the idea that while the U.S. economy may not be boosting a strong uptrend, it is most likely building a stronger support base.
China Raises Reserve Requirement; Bernanke Hits Back at Critics
Demand for risky assets fell overnight after China raised its bank reserve requirements by 50 basis points. This action sent worries throughout the market that perhaps the Chinese economy was heating up too rapidly. The move is expected to keep growth under wraps.
Investors backed out of risky stocks and commodities on the news, pressuring the Australian, New Zealand and Canadian Dollars.
Dollar Falls against Most Majors; Risk appears to be Back On
The U.S. Dollar fell against most major currencies in overnight trading as investor appetite for risk increased while tensions over Irish debt issues eased. Pressure increased on the Dollar amid optimism that a bailout for Ireland will prevent contagion across the Euro region’s debt markets.
The AUD USD is trading in a tight range overnight. Volume has been light and the market is trading inside of Tuesday’s range. Unless this pair continues to break lower, a tight trading range usually suggests impending volatility which may mean the start of a short-covering rally.
This week the USD JPY confirmed last week’s closing price reversal bottom with a follow-through rally to the upside. The primary catalyst behind the Dollar/Yen rally was the interest rate differential. Treasury Bond yields rose this past week while Japanese rates held steady. The increased spread helped draw investors into the Dollar.
The EUR USD continued its sell-off on Thursday after turning the main trend down on the daily chart earlier in the week.
Downside momentum indicates that the break is likely to continue down into an uptrending Gann angle from the 1.2644 bottom at 1.3544 on Friday.
Based on the main range of 1.2587 to 1.4282, the retracement zone at 1.3510 to 1.3434 is also a potential downside target.