Euro Resumes Short Covering Rally Amid Better Economic Data

The U.S. Dollar is trading lower against the European currencies buoyed by fresh Euro Zone economic data and spillover buying following yesterday’s strong U.K. GDP report.

The U.S. Dollar is trading lower against the European currencies buoyed by fresh Euro Zone economic data and spillover buying following yesterday’s strong U.K. GDP report. Worse than expected Australian retail sales is pressuring the Pacific Rim currencies and speculators are driving up the Canadian Dollar ahead of this mornings GDP data.

Trading has been light overnight as traders await this morning’s U.S. ADP private employment report. The ADP number is expected to show an increase of 40,000 jobs. A number greater than the pre-report guess could be bullish for the Dollar if traders decide to take into consideration a possible interest rate hike sooner than expected by the Fed. The Dollar could fall if traders decide to turn up demand for higher risk assets because of the news. A weaker than expected report is likely to also be bullish for the Dollar. Given the nature of the trade recently, it is still unclear whether this market likes the Dollar because of the improving economy or if it likes the Dollar as a safe-haven. Either way, traders should look for the first volatile trading action this week following the release of this report.

Later in the morning, traders will be watching the Chicago PMI and U.S. Factory Order reports to look for clues that the economy is improving. Traders are looking for this business barometer report to come in between 58.3 to 63.0 with a consensus of 61.0. After posting a strong 1.7% gain in January, this morning’s February Factor Orders report is expected to rise by 0.4%.

The EUR USD is trading higher overnight following a better than expected Euro Zone economic report. News that Euro Zone consumer prices increased more than expected helped the Euro advance against the Dollar. This news supported the currency and offset the news that Euro Zone unemployment edged higher as expected.

On Tuesday, the Euro was under pressure because of a drop in the Greek 7-year Bond that was sold in a well-received auction the previous day. A new issue of Greek 12-year Bonds was poorly demanded by traders, sending doubts throughout the Euro Zone that Greece would be able to live up to its financial obligations.

Technically, the Euro behaved as expected by correcting back 50% of the first leg up from the recent bottom. The short-term range is 1.3267 to 1.3537 with a retracement zone at 1.3402 to 1.3370. Early last night, the Euro completed a 50% retracement of this swing when it tested 1.3384. Buyers came in at this level to drive the market higher, putting it in a position to turn the main trend to up on the daily chart following a breakout over the last swing top at 1.3537.

The GBP USD is trading higher this morning following Tuesday’s better than expected 4Q GDP report. The overnight rally helped this market breakout over a key 50% price level at 1.5080. The trend remains down until the last swing top at 1.5381 is broken, but the formation of a secondary higher bottom at 1.4797 is giving this market a bullish spin. Gains could be limited today because of political concerns. Traders are watching the upcoming election closely for signs of a possible “hung Parliament”. The British Pound would likely weaken if this occurs since it would curtail any progress in reducing the huge U.K. budget deficit.

The stronger Euro is helping to pressure the USD CHF. This morning this pair is caught between a pair of retracement levels at 1.0628 to 1.0600. Further strength in the Euro is likely to pressure this pair through the lower end of this range. This could help accelerate downside momentum which could drive this market down to a 50% level at 1.0513.

Signs of an improving U.S. economy are helping the USD JPY extend its recent rally. Yesterday’s better than expected U.S. consumer confidence report helped launch the current up leg. Speculation of a strong ADP employment number this morning is helping to boost the market overnight. In addition, traders still feel the Japanese government and central bank are not doing enough to help the economy to improve. Furthermore, there still exists the real possibility that deflation will threaten the economic recovery.

The USD CAD is trading lower this morning as speculators press the lower end of a key retracement zone at 1.0181 to 1.0152 in anticipation of this morning’s Canadian GDP Report. Pre-Report estimates are for the 4Q GDP figure to show an increase of 0.5%. This is down slightly from the previous estimate of 0.6%.

Currently, the Dollar/CAD is trading at an important area. A break through the lower end of the retracement zone will indicate weakness, but regaining the upper end at 1.0181 will send a signal that a secondary higher bottom may be forming. This could trigger the start of a strong rally.

Following the release of this morning’s reports, movement could be limited in this market as traders will once again turn their focus on Friday’s U.S. Non-Farm Payroll report.

The AUD USD is trading lower overnight as bullish traders take profits following the recent rise and pare positions following a disappointing retail sales report. The report missed its mark as traders were banking on an increase of 0.3% versus the -1.4% actual number. The poor report now raises doubts that the Reserve Bank of Australia will raise interest rates by 25 basis points in April as speculated earlier in the week. Some traders still feel rates will move higher based on hawkish comments over the weekend from RBA Governor Glenn Stevens.

The NZD USD is trading slightly lower in sympathy with the drop in the Aussie Dollar. The poor showing in Australian retail sales raises doubts that the New Zealand economy has strengthened enough to warrant a June rate hike as expected. Technically, this market found resistance at a major 50% level at .7124.

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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