Euro Touches New Low for Year; No Solution to Debt Woes in Sight

The Euro touched a new low for the year, taking out the lateMarch bottom at 1.3267. Although the break to 1.3257 was met with profit-takingand bottom picking, the fundamentals are still suggesting that this pair has along way to go before support is established.

The Euro touched a new low for the year, taking out the lateMarch bottom at 1.3267. Although the break to 1.3257 was met with profit-takingand bottom picking, the fundamentals are still suggesting that this pair has along way to go before support is established.

By all reports, Greece continues to move closer tosovereign debt default. It looks as if the bailout from the EU/IMF proposedearlier in the month will not be enough to meet Greece’s financial obligations. Thecost to finance the debt is sky-rocketing so unless there is a plan in theworks to rewrite Greece’sfinancial obligations it looks as if it has no choice but to default. Contagionis another concern for investors. As the Greek financial situation worsens, sodo the financial problems in Portugaland Spain.

The spread between Greece Bonds and German Bunds continuesto be the best indication that there is risk of default. Yesterday this spreadtraded over 500 basis points. On Thursday, the Dollar rose against the Eurodespite on-going talks to activate the loan agreement between Greece and theInternational Monetary Fund. Short-traders believe there is not enough money inthis agreement to help Greeceover the long-run.

After a healthy three-day rally, the GBP USD closed lowerfollowing the release of a worse than expected U.K. retail sales report. Marchretail sales showed an increase of 0.4%. The increase was less than economistestimates of 0.6%. Traders reacted by selling the British Pound as the reportindicated the possibility of slower growth in the economy.

Earlier in the week, the British Pound rose after thegovernment reported higher than expected consumer inflation. This newstriggered a rally in the Sterling,but gains were limited on election concerns. Recent polls are showing the May6th election may result in no party have a significant majority. This couldlead to a hung parliament meaning legislation to cut the U.K. deficit may be limited.

Overnight Fitch Ratings issued a statement which could weighon the Japanese Yen over the near-term. In commenting on the level of Japanesedebt, Fitch said the Japanese government “is one of the most indebted in theworld.” It further added “In absence of sustained economic recovery and fiscalconsolidation, government debt will continue to rise, placing downwardspressure on sovereign credit and ratings over the medium term.”

The initial reaction by traders drove the USD JPY to 93.34,but weakening demand for higher yielding assets helped the Japanese Yen recoveras investors sought safety in lower yielding assets. A late session turnaroundin U.S.equity markets helped drive down demand for lower yielding currencies,triggering a surge in the USD JPY. Therally helped take out earlier resistance at a 50% level at 93.18, sending thispair to the .618 level at 93.55.

The USD CAD confirmed Wednesday’s closing price reversalbottom at .9929. There was very little follow-through to the upside however, asa late session surge in demand for higher risk assets helped to limit gains.

On Wednesday, the USD CAD hit a new 22-month low but therewas very little follow-through to the downside. This is usually an indicationof an oversold market. Technically, the closing price reversal bottom indicatesan impending short-covering rally which could send this pair up to 1.0072 to1.0106. It looks as if increased demand for higher yielding assets will dictatethe short-term direction of this pair. The longer-term outlook is for the CanadianDollar to appreciate against the U.S. Dollar due to a better economy and higherinterest rates.

The AUD USD traded lower early in the session afterWednesday’s rally failed to attract fresh buying, but a late session rally in U.S. equitymarkets helped fuel a short-covering rally. The charts are indicating the possibility of asecond lower top at .9337. Downside pressure is building which could drive thismarket into a support cluster at .9200 to .9191.

Fundamentally traders are confused about the next move bythe Reserve Bank of Australia.Earlier in the month, a report showing that mortgage approvals had fallenpressured the Aussie as it indicated that the RBA would hold rates steady atits next meeting in May. Earlier this week however, the RBA minutes indicatedthe possibility of a rate hike because of concerns about inflation. With thesetwo reports neutralizing each other, traders may be selling the AustralianDollar on the thought that Chinawas reading to revalue the Yuan.

Continue to look for a choppy two-sided trade until tradersget a clear picture of the RBA’s upcoming interest rate decision, China decideson the revaluation of the Yuan or global equity markets take off to the upside.

The NZD USD traded in a tight range and finished slightlybetter. .7124 continues to repel rallies. A breakout over this price will be astrong indication that the Kiwi is going to move higher. A break through .7052could trigger a sharp break.

Traders aren’t sure which direction the Reserve Bank of New Zealandwill take at its next meeting. The economy doesn’t seem to be strong enough tobegin hiking rates, but the RBNZ may be feeling pressure to increase interestrates because of the recent hikes by Australia and the anticipated hikeby the Bank of Canada in June.

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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