Euro Accelerating to Downside; Greece PM says They’ll Go to IMF

At the mid-session the U.S. Dollar is trading better against most major currencies with the exceptions of the Japanese Yen and New Zealand Dollar.

At the mid-session the U.S. Dollar is trading better against most major currencies with the exceptions of the Japanese Yen and New Zealand Dollar. Nervous investors removed risk from the equation overnight on concerns that Greece would not get the aid from the Euro Nation that traders had built into the recent rally.

The break in the Euro started late Wednesday when news came out that the political party representing German Chancellor Merkel said that a bailout was unlikely and that Greece may have to seek aid from the International Monetary Fund. This weakened the Euro, forcing a lower close. This news then spilled over into the markets overnight, putting pressure on higher yielding currencies while helping to drive traders into the Dollar for safety.

The EUR USD weakened further throughout the morning before accelerating the break to the downside shortly before the mid-session. Comments from the Greek Prime Minister Papandreou warned that his country would be forced to go to the International Monetary Fund if the European Union doesn’t help. So traders are saying Papandreou is poised to attempt to go it alone if necessary. Greece isn’t asking for money, but needs help because it is too expensive for it to borrow in the open market. The key to sustaining the developing rally will be this market’s ability to attract buyers in the retracement zone at 1.3628 to 1.3584. If this doesn’t happen, then look for the recent bottom at 1.3440 to fail.

The British Pound is under pressure at the mid-session. Wednesday’s rally was triggered by better than expected U.K. Initial Claims and news that the Bank of England Monetary Policy Committee had voted unanimously at its last meeting to leave its quantitative easing program unchanged. Today this market is reacting to falling demand for risky currencies. The GBP USD rallied into a retracement zone at 1.5297 to 1.5419 earlier this week. With the main trend down, this market is currently finding resistance inside this zone. This is helping set up a possible break back to 1.5080 to 1.5010.

Trader demand for lower risk assets helped to pressure the USD JPY early in the trading session but buyers quickly came in, driving this market into a downtrending Gann angle at 93.75. Aggressive traders failed to break through this important resistance point and the Dollar/Yen began to sell-off when U.S. stock indices weakened. A sharp break in the equity markets will send traders into the lower yielding Japanese Yen.

Stronger demand for lower yielding assets is encouraging short USD CAD traders to lighten up their positions. The failure to reach a new low for the year this morning indicates that traders may getting ready to begin aggressively short-covering. The charts indicate there is room to the upside for a retracement if oversold markets prevail. Furthermore, although many traders feel that parity is going to happen, many refuse to get aggressively short at current levels.

The Canadian Dollar has been strong because traders believe the Bank of Canada is likely to raise interest rates before the Fed. In addition, stronger gold and especially crude oil has been helping to pressure the Dollar/CAD. Although conditions may be oversold, downside momentum continues to indicate that this market could test the July 15, 2008 bottom at 99.74 before finding solid buying interest.

The USD CHF is trading higher at the mid-session because of the weaker Euro. The current intraday collapse in the Euro increases the likelihood of an intervention by the Swiss National Bank. Earlier in the week, this market found support after completing a 50% retracement of the 1.0130 to 1.0897 range. This price level was 1.0513. The market stopped at 1.0506. The developing chart pattern suggests a possible short-covering rally back to 1.0701 to 1.0750.

Lower demand for higher yielding currencies is helping to weaken the AUD USD and limit gains in the NZD USD. So far the Aussie is trading lower but inside of Wednesday’s range. If selling pressure prevails then look for a break back to at least .9100. The New Zealand Dollar is trading higher but inside of a potential resistance zone at .7124 to .7199. Profit-taking could start anytime if sentiment shifts toward risk aversion. The direction of U.S. equity markets should control the direction of these two higher yielding assets.

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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