Euro Posts Closing Price Reversal Bottom; Appears Ready to Turn Trend

The EUR USD posted a closing price reversal bottom after positive comments from Greek officials encouraged weak shorts to lighten up their positions. After touching a new low for the year overnight

The EUR USD posted a closing price reversal bottom after positive comments from Greek officials encouraged weak shorts to lighten up their positions. After touching a new low for the year overnight, the EUR USD turned around as the lack of fresh selling pressure scared some of the weaker shorts out of the market. Near the midsession, the Euro moved higher as the market responded to new budget cut proposals by Greece. This triggered the short-covering rally which produced the closing price reversal bottom.

Technically, the closing price reversal bottom is a good sign that selling pressure is drying up. Watch for a follow-through to the upside to confirm the bottom. This move should lead to a test of the recent swing top at 1.3692. A break through this price will turn the main trend to up and should trigger an acceleration to the upside as many shorts will be forced to cover. The charts indicate plenty of room to the upside with 1.4009 a possible short-term target.

On Tuesday, the U.S. Dollar finished mixed against most majors as traders tried to decide whether it had reached the end of the rally, This morning’s surge to the upside in the March Dollar Index fell short of the recent main top at 81.43 before turning lower. This is an indication that the selling may be greater than the buying at current levels. The formation of a secondary lower top will also be a strong sign that this market is getting ready to rollover to the downside.

The GBP USD closed lower but inside of Monday’s range. The turnaround in the Euro took some of the pressure off the British Pound; however, it still remains weak because of political concerns, the U.K. budget deficit and the Bank of England’s soft monetary policy. A recent poll shows that the Minority may gain control of the Parliament for the first time since 1974. Investors fear that political gridlock will prevent the country from digging out of its mountains of debt. Some are saying that a Labor Party victory will lead to high interest rates and higher taxes which will drive the Sterling even lower.

Despite finishing higher, the rally in the stock market could not support the USD JPY which finished lower for the day. This move could have been position squaring ahead of Friday’s U.S. Non-Farm Payrolls report or it could have meant that investors are anticipating a shift to the downside in the equity markets. The charts indicate resistance is building around at major 50% level at 89.30. A further weakening will trigger a test of the .618 level at 88.24. A break under the last main bottom at 88.55 will change the main trend to down and could trigger an acceleration to the downside as stops are likely to be triggered.

The rally in the Euro helped put pressure on the USD CHF. Investors bought the Swiss Franc as they became less concerned about the possibility of another round of intervention by the Swiss National Bank. Rumors swirled late in the session that the SNB intervened, but it didn’t show up in the price action. At this time, it’s not a case of the Swiss Franc getting stronger, but the Euro getting weaker. A change in trend in the Euro could trigger a dramatic fall in the USD CHF. The next possible downside target is 1.0513.

The USD CAD plunged sharply lower after the Bank of Canada left interest rates alone and reaffirmed its conditional commitment that interest rates would remain low until at least June. This didn’t matter much to traders who continued to buy the Canadian Dollar after the fourth quarter GDP report released earlier in the week showed a 5% gain versus pre-report guesses of 4.2%. Investors feel it’s not if, but when will the BoC begin raising rates. Traders are pricing in a hike for June because of the BoC statement. Its statement is more concrete than the Fed’s stance that rates will not be raised for “an extended period”.

On Tuesday the Reserve Bank of Australia raised its benchmark interest rate by 25 basis points to 4.00%. This move helped to support the AUD USD after a volatile initial reaction. During the day, the Aussie tried to regain a .618 retracement level at .9042, but failed to close above it. Once this area is overtaken, look for the Aussie to attempt a breakout over the recent top at .9070. Firmer equity markets also helped provide support. Signs that U.S. equity markets may be topping could put some downside pressure on the Australian Dollar.

The RBA’s hike in interest rates is helped to pressure the NZD USD. In addition, traders seemed to be concerned about economic growth and employment. Despite higher stocks, gold and crude oil, investors do not seem too interested in the long side of the New Zealand Dollar at this time.

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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