As the week winds down, the focus today will be on three currencymarkets which formed closing price reversal tops last week. This weekthe EUR USD, GBP USD and USD CAD confirmed their technical reversalsfrom last week.
As the week winds down, the focus today will be on three currency markets which formed closing price reversal tops last week. This week the EUR USD, GBP USD and USD CAD confirmed their technical reversals from last week.
The EUR USD is trading inside of a major range formed by 1.3832 to 1.4447. The retracement zone inside of this range is 1.4139 to 1.4067. This week the Euro broke into this retracement zone only to find support at 1.4086.
The subsequent rally from the low helped form another minor range of 1.4447 to 1.4086 with a retracement zone at 1.4266 to 1.4309. Yesterday’s high completed a test of this retracement zone when it stopped at 1.4326.
From a technical standpoint, this action was to be expected. If new sellers stepped in at 1.4326 then look for the start of another leg down to take out the bottom at 1.4086 and turn the main trend down.
Fundamentally, an unexpected improvement in Euro Zone economies during the second quarter is helped firm the Euro yesterday, but overnight news about weaker consumer prices in the Euro Zone has the Euro under pressure. Today’s U.S. reports regarding CPI and consumer sentiment are likely to set the tone of the day.
Last week’s announcement by the Bank of England to expand and extend its quantitative easing program is still weighing on the minds of traders. This bearish news helped put in the top last week in the GBP USD that led to follow-through selling this week. The news yesterday that the French and German economies unexpectedly grew during the second quarter helped trigger a short-covering rally because of increased optimism, but overnight it looks as if this news was not enough to combat last week’s more bearish BoE decision.
Technically, the Pound failed to retrace to a 50% price at 1.6712 before new selling pressure surfaced at 1.6658. The charts indicate that a secondary lower top may be forming. New selling pressure could help drive this market down through the last main bottom at 1.6390. This move would turn the main trend to down.
The USD CAD is showing signs this morning that its two day break may be ending. Based on the short-term range of 1.0631 to 1.1075, the downside target of any weakness was 1.0853 to 1.0800. Yesterday’s break stopped at 1.0792 before rallying.
The key as to whether this market continues its up move will be today’s U.S. economic data. Weaker consumer sentiment is likely to help the USD CAD. A better than expected number should trigger renewed appetite for risky assets which should help the Canadian Dollar rally.
Fundamentally, traders should watch the U.S. consumer sentiment report for direction. This report is likely to set the tone for the day. Technically the charts indicate that the British Pound and Euros are indicating tops while the USD CAD chart shows a bottoming formation. The rallies the past two days in the Pound and Euro look like short-covering. If the fundamentals can confirm the technical picture then look for renewed downside pressure in the EUR USD and GBP USD to turn the trend down. A bearish report will boost the USD CAD.