GBP USD Could Retrace to 1.6388 – 1.6443

Overnight a report showed that the U.K. economy contracted less thanpreviously estimated in the second quarter. Economists had beenforecasting a decline of 0.8% for the U.K. Second Quarter GDP. Theactual number showed a smaller contraction at 0.7%. Some analysts feelthat this is a sign the worst of the recession may be over.

Daily Analysis

The U.S. Dollar is trading lower against most major currencies overnight. This weakness is a continuation of yesterday’s action which saw the Dollar settle lower after a late session surge in U.S. equity markets and crude oil.

Yesterday it was reported that U.S. Second Quarter GDP eased to a 1% decline after posting a drop of 6.4 % during the first quarter. Today traders will react to July Personal Income and Spending. These reports are expected to show declines as consumers continued to hold on to their money. Michigan Sentiment will also be reported. The forecast is for an increase in consumer confidence because of the strong rise in equity markets.

GBP USD

Overnight a report showed that the U.K. economy contracted less than previously estimated in the second quarter. Economists had been forecasting a decline of 0.8% for the U.K. Second Quarter GDP. The actual number showed a smaller contraction at 0.7%. Some analysts feel that this is a sign the worst of the recession may be over.

Technically, yesterday’s closing price reversal bottom on the daily chart was confirmed overnight with follow-through buying. Based on the short-term range of 1.6623 to 1.6153, traders should look for a minimum retracement to 1.6388 to 1.6443.

With the main trend down, look for new selling after this retracement zone is tested. Fundamentally, pressure is still on this market because of the Bank of England’s decision to increase the amount of funds available for quantitative easing. Traders also feel that the U.K. will lag the U.S. and Euro Zone economies during the recovery from the recession.

EUR USD

Look for a higher opening in the Euro this morning. It looks as if traders are beginning to lean on the Euro to recover from the recession before the U.S. Dollar.

This morning European confidence in the economy increased twice as much as traders had forecast. This gave the Euro a boost following yesterday’s strong late session rally. Increased demand for more risky assets like equities and commodities also helped generate fresh support for the Euro.

Technically, the Euro cleared a major series of retracement levels to put it in a position to rally further. The main trend is up with 1.4447 the next target. The first sign of weakness will be a break back into the retracement zones.

USD JPY

Stronger equity markets overnight are helping to put pressure on the Japanese Yen as traders may be renewing their interest in the carry trade. For almost the entire month of August, Japanese investors have been repatriating funds out of fear of a correction in U.S. equity markets. Japanese investors have also been buying Yen because of the possibility that Chinese financial officials will cut liquidity in order to clamp down on over capacity and reckless lending practices. Technically the USD JPY has to hold downtrending Gann angle resistance at 94.02 or this market could breakout to the upside.

USD CAD

The inability to break the USD CAD through resistance at 1.1124 despite bearish comments from a Bank of Canada official earlier in the week has encouraged a selling overnight. The BoC is concerned that a high priced Canadian Dollar will hurt economic growth.

Yesterday’s late session reversal in crude oil and equity markets helped trigger a break rally while driving the market into a retracement zone at 1.0877 to 1.0819. Higher energy and stock prices could help weaken this market today.

Daily Chart

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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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