British Pound and Euro Poised to Breakout to Upside

The catalyst behind Friday’s huge drop in the Dollar was a better than expected government report. Traders aggressively sold the Dollar after the government reported a lower than estimated decline in 2nd Quarter GDP. Today’s number suggests that the U.S. economy is closer to a recovery. This triggered greater demand for higher risk, higher yielding assets.

The catalyst behind Friday’s huge drop in the Dollar was a better than expected government report. Traders aggressively sold the Dollar after the government reported a lower than estimated decline in 2nd Quarter GDP. Today’s number suggests that the U.S. economy is closer to a recovery. This triggered greater demand for higher risk, higher yielding assets.

The strong rally in the GBP USD helped put this currency pair in a position to breakout to the upside next week. A spike through 1.6585 turned the main trend to up on the daily chart and triggered an intraday breakout rally on Friday. Currently this currency pair is in a position to challenge the June top and high for the year at 1.6743. In addition to the weaker U.S. GDP number, traders are anticipating a change in the Bank of England’s asset buyback policy at next week’s central bank meeting. There is even speculation building that the BoE will be the first central bank to raise interest rates. The odds are low however that this will occur during this meeting.

Stronger appetite for risk also triggered a breakout rally in the EUR USD. For most of this week, this currency pair had been working on a possible weekly closing price reversal, but the rally today put an end to that possibility. The current upside momentum indicates that this market may be poised to test the high for the year at 1.4337 next week. If upside momentum continues like it was on Friday then the Euro may see 1.4500 fairly easily.

The catalyst behind Friday’s huge drop in the Dollar was a better than expected government report. Traders aggressively sold the Dollar after the government reported a lower than estimated decline in 2nd Quarter GDP. Today’s number suggests that the U.S. economy is closer to a recovery. This triggered greater demand for higher yielding, higher risk assets.

Weaker equity markets and a report showing the U.S. economy contracted less than estimated put selling pressure on the USD JPY. This currency pair broke minor support at 94.95 to 94.72 during the day and never looked back. Downside momentum is building which could threaten the uptrend if 94.01 is violated.

The USD CAD tested the low for the week at 1.0748 and closed in a position to take it out next week. Today’s strong rally in the Canadian Dollar was triggered by signs of a recovery in the U.S. economy and higher crude oil. A break next week in the equity markets could limit losses to the downside.

Increased demand for higher yielding assets helped rally the AUD USD to a new high for the year. This move is likely to continue unless the equity markets begin a sizeable correction. It all depends on whether traders decide to follow the economic data or the movement in the U.S. equity markets.

The NZD USD recovered nicely following yesterday’s sell-off. Today’s upside reaction was to a better than expected U.S. GDP Report. This market is either going to break out to the upside or form a secondary lower top. It all depends on which set of fundamentals traders decide to follow.

Longer-term New Zealand Dollar traders may be focusing on bearish comments from the Reserve Bank of New Zealand which suggested the central bank is not through cutting interest rates. Shorter-term traders may be concentrating on the possible improvement in the U.S. economy leading to greater demand for higher yielding assets.

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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