Euro Traders Losing Confidence in ECB

The U.S. Dollar rose against all major currencies on Thursday following news that China posted a weak first quarter GDP and Euro Zone Industrial Output fell. Both of these events suggest that the global recession could be worsening thereby reducing the chances of a global economic recovery anytime soon.

The U.S. Dollar rose against all major currencies on Thursday following news that China posted a weak first quarter GDP and Euro Zone Industrial Output fell. Both of these events suggest that the global recession could be worsening thereby reducing the chances of a global economic recovery anytime soon.

Other economic events encouraged traders to flock to the Dollar including weak U.S. housing data and record jobless claims.  The IMF even contributed to the move to the Dollar by suggesting that the current global recession could be unusually long and more severe than previously forecast.  In addition it concluded that the recovery process could be lengthy and lethargic.

The current weakness in the Euro can be attributed to a combination of a weakening chart pattern and loss of confidence by investors with the European Central Bank policymakers.

 A split seems to be developing between those ECB officials who want to keep the benchmark rate above 1.0% and those who want to allow it to drift as low as possible.

Investors are beginning to question whether this issue will delay the economic recovery process.

Technically, the USD CAD formed a closing price reversal bottom.  This is usually a good indication of a developing change in trend.  Tomorrow’s CPI report could trigger a confirmation of the bottom.

Despite the strong U.S. stock market, both the AUD USD and NZD USD traded lower.  This is an indication that traders are losing interest in the higher yield offered by Australia and New Zealand and are instead focusing on the economy of each country.

The weak GDP report from China could be sending a signal that demand from this country for exports from Australia and New Zealand may drop as China’s economy contracts.

A new economic stimulus plan by China could turn around the AUD USD and NZD USD but there is nothing in the works at this time. 

Traders in both of these pairs are fearing more aggressive action by their respective central banks in the form of additional rate cuts.  Quantitative easing and intervention haven’t been eliminated as solutions.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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