More Downside Pressure Expected on Euro

Selling pressure continued to drive the Euro down onWednesday. The outlook for the Euro remains bearish despite on-going meetingsbetween Greek officials and the IMF to find a solution to the growing sovereigndebt problem. Selling pressure continued to drive the Euro down onWednesday. The outlook for the Euro remains bearish despite on-going meetingsbetween Greek officials and the IMF to find a solution to the growing sovereigndebt problem.

The EUR USD was down all day in 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.

Throughout the day, talk was circulating that Portugal is close to a similar dilemma as Greece. Portugal’sbonds are also selling off, indicating investor lack of confidence in thiscountry’s ability to contain its debt.

All of this is adding up to more pressure on the Euro.

The GBP USD closed higher after holding steady most of theday. Government data released early Wednesday morning showed the number ofpeople claiming jobless benefits fell by 32,900 in March. This was three timesmore than pre-report estimates 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 helped boost the USD CHF. Technically, thismarket is poised to breakout to the upside. Traders are selling the Swiss Francin anticipation of further intervention by the Swiss National Bank.

The weakening U.S. equity markets helped to pushthe USD JPY higher. Early in the trading session, this currency pair was havingtrouble with a 50% price level at 93.18. Wednesday’s weakness in the stockmarket drove the Yen through this level as well as a downtrending Gann anglethat has held the market down since the 94.77 top on April 5th. Upside momentumcould 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 be careful because ofWednesday’s closing price reversal bottom. This type of pattern can lead to a 2to 3 day counter-trend rally.

Weaker stock prices, a sign of lower demand for riskyassets, put downside pressure on the Australian Dollar. Overnight the AussieDollar tried to breakout to the upside but buying power dried up.

Traders are getting mixed signals. Bearish traders believethat a weak mortgage demand report from earlier in the month indicates theReserve Bank of Australiais unlikely 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 was a contributing factor to Wednesday’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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