Euro Outlook Remains Bearish

The outlook for the Euro remains bearish despite on-goingmeetings between Greek officials and the IMF to find a solution to the growingsovereign debt problem. The outlook for the Euro remains bearish despite on-goingmeetings between Greek officials and the IMF to find a solution to the growingsovereign debt problem.

The EUR USD continued to break during the New York trading session after trading lowerovernight. Another indication of lower prices to come was the widening of the Greek10-year Bond/German Bund Spread to 500 basis points. Investors are continuingto ask for protection from a potential collapse in the Greek debt market.

Traders are becoming convinced that there is not enoughmoney available to help out Greecein the long-run. Hedge funds continue to short the Euro in anticipation of moreborrowing by Greeceand despite another proposal from the EU/IMF to provide additional emergencyfunds if necessary.

At the mid-session, talk is circulating that Portugal is close to facing similar problems as Greece. Portugal’sbonds are also selling off, indicating investor lack of confidence in thiscountry’s ability to contain its debt.

The GBP USD is trading higher and holding steady. Governmentdata released early this morning showed the number of people claiming joblessbenefits fell by 32,900 in March. This was three times more than pre-reportestimates and the sharpest drop since June 1997.

Overnight the Bank of England minutes were released. The datarevealed that the BoE members voted 9-0 to keep interest rates at historicallylow levels, but that inflation was a concern. On Tuesday a report was releasedshowing U.K. CPI had risen to 3.4%. This percentage was almost twice the targetof 2.0%. After providing stimulus formonths in an effort to revive the economy, the BoE will now have to figure outhow to begin removing the stimulus to lower inflation without upsetting thedeveloping recovery.

The upcoming May 6th election remains a concern for U.K. investorsat this time which is helping to limit gains. Traders maintain that theelection is too close to call and that there is still a strong possibility of ahung parliament. This could mean that without a majority in the parliament, aplan to slash the U.K.budget deficit may not be able to be implemented.

The weaker Euro is helping to boost the USD CHF at themid-session. Technically, this market is poised to breakout to the upside.Traders are selling the Swiss Franc in anticipation of further intervention bythe Swiss National Bank.

The weakening U.S. equity markets are helping topush the USD JPY higher. Early in the trading session, this currency pair washaving trouble with a 50% price level at 93.18. The current break in the stockmarket is driving the market through this level as well as a downtrending Gannangle that has held the market down since the 94.77 top on April 5th. Upsidemomentum could take this market to 93.55.

The USD CAD was under pressure early in the session followingTuesday’s bearish announcement by the Bank of Canada that it is going to beginhiking interest rates sooner than expected. The Canadian Dollar rose to a new22-month high overnight but weakness in the U.S. equity markets and oversoldconditions are helping to push this pair near the positive side of the ledger.

Traders feel this currency will continue to rise as long asthe U.S.keeps interest rates low and because of the improving Canadian economy. The BoCwants to act as early as June 1st in order to stem the harmful effects ofinflation. Aside from a few short-covering rallies triggered by the dumping ofhigher risk assets, look for traders to continue to press the Dollar/CAD lower.

Short USD CAD traders should watch for a possible closingprice reversal bottom today. This could force a short-covering rally over thenear-term.

Weaker stock prices, a sign of lower demand for riskyassets, are putting downside pressure on the Australian Dollar. Overnight theAussie Dollar tried to breakout to the upside but buying power dried up.Traders are getting mixed signals. Bearish traders believe that a weak mortgagedemand report from earlier in the month indicates the Reserve Bank of Australia isunlikely to hike rates in May. Tuesday’s RBA minutes indicates thatpolicymakers are concerned about inflation and may consider a rate hike. Theinability to reach a solid conclusion is a contributing factor to today’sweakness.

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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