China Comments Overnight Hurt The US Dollar

China repeated its desire for a Super Sovereign Currency and this led to heavy selling in the dollar.  They said that they thought the IMF should manage parts of the members foreign exchange reserves.  China is the largest holder of US treasuries.  In the most recent data their holdings totaled $763.5 billion.

This call from China  is not new and has helped contribute to the fall in the dollar over the last few months.  China in their call, would specifically like the IMF to issue more blended rate bonds called SDR (or Special Drawing Rights) so they could invest in them in lieu of their US bond holdings (an SDR is a blended rate bond consisting of part EUR, part CHF and part Yen).   The action would lessen the demand for US bonds and could lead to higher interest rates here in the US.  With the dollar falling, this should also lead to higher commodity prices.

Against the EURUSD the currency rose off the news.  The pair broke through the midpoint of the last move lower at the 1.4013 level. This was also the high yesterday.   The correction off the initial move higher, tested the 1.4013.  The market bounced off the level and moved to the high for the day at the 1.4100 level.  The next target is 1.4111 where the top trendline on the wedge formation is located and then  1.4130 - the high from Wednesday.   Above those levels, the 1.4186 becomes the next target - the midpoint of the move down from the July 2008 high (chart below).

On the downside 1.4058 -61 was the intraday high before its move to 1.4100.  One would expect buyers against his level for the day.  Below that level brings the congestion area for the day with 1.4013 to 1.4019 being the area where the high from yesterday and the 38.2% retracement of the move higher is currently located (using the high of 1.4100).

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