British Pound Giving Back Some Gains; Euro Turns Lower

The U.S. Dollar is making a slight comeback at the midsession after trading lower against most majors overnight.

The U.S. Dollar is making a slight comeback at the midsession after trading lower against most majors overnight. The early morning weakness in the Dollar helped to drive up demand for high risk equities and commodities. While equities have maintained their strength, both gold and crude oil have weakened.

The GBP USD is a biggest gainer at the mid-session. Although this market has broken off its high, it is still managing to hold on to an impressive gain. Despite the strong move however, traders have to realize that this is only short-covering and not new buying. Also note that the main trend is still down as no main tops have been crossed during this current rally.

The initial move to the upside in the British Pound was fueled by a report showing that U.K. Jobless Claims unexpectedly fell in February. The spike to the upside was triggered by the news that the BoE members voted 9 -0 to leave its quantitative easing program unchanged. This news meant that the economy may be improving so much that no new liquidity would have to be pumped into the market. Following this report, a strong up move ensued, driving this market through a pair of 50% levels at 1.5271 and 1.5297. After trading slightly better than these prices, the market has fallen back to test these levels once again.

Earlier in the trading session, the EUR USD traded better on increased demand for higher yielding assets as well as improving conditions in Greece. Traders still feel Greece will receive a bailout from Germany and France. Since that initial surge however, this market has fallen back, erasing all of its earlier gains. The one thing that traders should have noticed today is that other currencies are accelerating against the Dollar while the Euro is struggling. Traders shouldn’t forget about the huge amount of shorts in this market. A short-covering surge could occur at any time if shorts begin to panic because of the current rally. The charts indicate that 1.4009 is the next likely upside target.

Overnight the Bank of Japan voted to leave interest rates unchanged. In addition, it doubled its loan program designed to combat deflation. The USD JPY traded higher this morning on the news, but has since backed down. This could be an indication that stocks may come down later in the day. The charts indicate that a break through .9077 is likely to trigger an acceleration to the upside.

The USD CHF is trading lower at the midsession, but picking up some steam as the Euro weakens. The direction of the Euro will dictate the direction of the Dollar/Swiss. The higher the Euro moves, the less likely the Swiss National Bank will intervene. The first downside target on the charts was reached last night at 1.0513 overnight, triggering a short-covering rally. If downside momentum persists, then look for a further decline to .1.0423 over the near-term.

Stronger demand for higher risk assets such as equities, gold and crude oil are helping to pressure the USD CAD at the mid-session. Tuesday’s FOMC statement regarding interest rates also indicates that the Bank of Canada may hike rates before the Fed. The trend in this market is decisively lower and likely to continue until this contract reaches parity.

Increased demand for higher yielding currencies is driving the AUD USD and NZD USD up. With the U.S. holding interest rates low and the central banks in Australia and New Zealand considering rate hikes, the interest rate differential has shifted back in favor of the Aussie and Kiwi.

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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