Forex Markets Need Bullish Economic Data to Sustain Rally

This week’s action in the Forex markets has been dominated by choppy, two-sided trading. Traders seem to be looking for improved risk appetite but can’t find the catalyst that will propel the markets to new highs for the year.

This week’s action in the Forex markets has been dominated by choppy, two-sided trading. Traders seem to be looking for improved risk appetite but can’t find the catalyst that will propel the markets to new highs for the year.

Yesterday’s strong rally in the crude oil market and the spillover buying in the global equity markets has laid a good foundation for a rally in the risk sensitive currencies, but volume has been light and traders non-committal which could be an indication that traders are waiting for more solid economic evidence that an economic recovery is taking place and that financial markets are stabilizing.

A rally in crude oil and equities may be enough to trigger short-covering, but may not be enough to encourage new buying in the GBP USD. Investors will be looking for more bullish economic news to drive this currency pair higher following the action by the Bank of England to expand its quantitative easing program earlier in the month.

The EUR USD rose yesterday because of renewed interest in higher yielding assets following a surge in crude oil and equity markets. All this rally did was retrace 50% of the recent break. Traders need more solid evidence that the Euro Zone economy is turning around. Last week’s news that France and Germany showed growth during the second quarter was not enough to sustain a rally. Traders will be looking for signs the economy is turning around before committing to the long side.

Higher crude oil and equity prices helped weaken the USD CAD yesterday. Traders will be looking for follow-through rallies in both of these markets to keep the rally going. Otherwise, investors will focus on the Canadian economy for direction.

A sustained rally in the U.S. equity markets should trigger a rally in the USD JPY. Traders are looking to satisfy their demand for risk and the implementing the carry trade will be the easiest way to do this.

Both the NZD USD and AUD USD should test their highs for the year if equity markets can breakout to the upside. Higher crude oil will renew demand for commodities which will also give the Aussie and Kiwi a boost.

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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