Friendly European Economic Data Weakens U.S. Dollar

The U.S. Dollar is trading lower this morning following a turnaroundin last night’s trading session after the release of better thanexpected data out of Europe. Early in last night’s trade the Dollar wastrading higher, but reports from France and Germany turned the Dollarlower. Manufacturing in France and Services in Germany bothunexpectedly expanded reigniting speculation that the global recessionwas coming close to an end.

Daily Analysis

Forex Pairs

The U.S. Dollar is trading lower this morning following a turnaround in last night’s trading session after the release of better than expected data out of Europe. Early in last night’s trade the Dollar was trading higher, but reports from France and Germany turned the Dollar lower. Manufacturing in France and Services in Germany both unexpectedly expanded reigniting speculation that the global recession was coming close to an end.

This was the second time in a week where both France and Germany were on the same page when it came to economic expansion. Last week both countries reported growth in second quarter GDP. Just like last week’s news, the overnight news triggered a rally in the Euro.

The EUR USD Euro rallied through a key retracement zone at 1.4293 to 1.4246 overnight. This move provided the power to take out the last main top at 1.4326 to turn the main trend to up.

The GBP USD is posting a gain this morning driven by the bullish economic news from Europe. Despite the rally this market is still trading below its key retracement zone at 1.6658 to 1.6749. This is because the fundamentals in the U.K. continue to remain bearish. The widening fiscal deficit along with a new round of quantitative easing is two reasons why the British Pound may lag the other currencies during the recovery.

Speculation that crude oil will rise because of greater demand during the economic recovery and strong equity markets is helping to boost the Canadian Dollar this morning. Technically the USD CAD market broke through a key 50% area at 1.0877 and is now in a position to challenge the .618 level at 1.0819. The main trend will turn down on the daily chart following a penetration of the last swing bottom at 1.0792.

The news earlier this week out of Switzerland regarding the UBS agreement with the IRS may be the catalyst behind the rise in the Swiss Franc. Following the announcement of the agreement, Switzerland announced that it was selling its shares of UBS. This move may have been a signal that the Swiss banking system has stabilized. Although it is still trading in a range, the overnight weakness in the USD CHF indicates this market may attempt to break under the last bottom at 1.0563.

Overnight weakness in Asian stock markets was the catalyst behind a rally in the Japanese Yen. Talk is circulating that traders unwound huge carry trade positions when China’s Shanghai index weakened. Technically, the USD JPY broke a .618 retracement level at 94.04. With the main trend down and momentum strong, look for a possible test of 93.08 over the short-term. A rally back over 94.04 could help this market strengthen. A breakout to the upside in U.S. equity markets may also help the USD JPY if traders decide to reinstate their carry trade positions.

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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