Bullish News Out of Euro Zone May Trigger Upside Breakout

The EUR USD finished the week up driven mostly by strong demand for higher risk. The strong surge in the stock market buoyed the Euro all week, but it was a contraction in European manufacturing and services, and an improvement in German business confidence that helped this pair finish the week on a high note.

The EUR USD finished the week up driven mostly by strong demand for higher risk. The strong surge in the stock market buoyed the Euro all week, but it was a contraction in European manufacturing and services, and an improvement in German business confidence that helped this pair finish the week on a high note.

Technically this market is at a crossroad. On Thursday heavy selling pressure broke this market from a high at 1.4290 to produce a reversal top. Although this reversal was not confirmed by a follow-through break on Friday, the charts still indicate a move through 1.4119 could trigger a correction to the downside. The main top at 1.4337 from June should still be considered the most important resistance. Based on the action on Friday, it may take another series of better than expected economic reports to finally push it through the top of its 60 day range.

Demand for higher risk assets helped push the GBP USD higher for the week, but this currency pair still managed to close the week on a sour note. On Friday, the Second Quarter Preliminary GDP Report showed a bigger than expected decline. This news served as a reminder that there is still a full-blown recession going on in the U.K. Furthermore, the government doesn’t seem to know what to do about it other than wait it out since the budget deficit has ballooned out of control.

The chart shows the major resistance is at 1.6743 but Friday’s action indicates that a secondary lower top may be forming at 1.6585.

The combination of higher crude oil prices and a soaring stock market helped drive the USD CAD sharply lower for the week. The weak close has this market in a position to test the low for the year at 1.0783. Based on the downside momentum, this market should be able to drive this market through this price fairly easily. That’s the technical opinion however. Fundamentally, a downside move may be limited by concerns by the Bank of Canada that the rapid rise in the Canadian Dollar is doing damage to the all important Canadian export market.

The USD CHF closed lower for the week but once again could not penetrate the June low at 1.0590. The main trend remains down on the weekly chart and will not turn up until 1.1021 is violated. Another surge in equity markets next week may provide the power to push this market through the support and into a new low for the year.

The USD JPY finished the day lower but the strong rally earlier in the week helped turn the main trend to up when it broke through the last swing top at 94.78. The new higher bottom is now at 93.08. Based on the current chart pattern, this market is running into retracement resistance at 95.31. More upside action in the equity markets next week should trigger a breakout over 95.31. If equity markets begin to top out then look for a correction back to 94.19 before a new uptrend begins.

Choppy trading in the equity markets on Friday limited gains in the AUD USD. Traders seemed to be reluctant to buy the Aussie after the U.S. equity markets opened sharply lower following bad news about Microsoft. Looking at the chart pattern, one can see that traders may be shy about initiating new positions so close to the high for the year at .8264. This may mean a short-term correction may be necessary to attract fresh buying.

The NZD USD closed higher for the week, but the trading action on Thursday and Friday indicates that the selling may be greater than the buying at current levels. The current chart pattern suggests that a move through .6511 could trigger a short-term correction to .6412.

Although equity markets have been rallying, the trading action the past two days in the New Zealand Dollar suggests that perhaps demand for higher risk assets may be diminishing because of overbought conditions.

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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