Short-Covering Rally Continues in Euro

The Euro continued its short covering rally at themid-session following the surprise announcement overnight that Greece wasgoing to ask the EU and IMF to release the funds they pledged two weeks ago tohelp the Greek government shore up its budget deficit. The Euro continued its short covering rally at themid-session following the surprise announcement overnight that Greece wasgoing to ask the EU and IMF to release the funds they pledged two weeks ago tohelp the Greek government shore up its budget deficit.

Although the financial problems in the Euro Zone areexpected to persist for quite some time and may even spread to other membercountries while the EU and IMF decide how they are going to help provide theneeded aid, shorts have decided to cover with a vengeance today. No serious damage has been done to the Euro’sdowntrend and any rally is likely to be sold again because no base has beenbuilt to support a rally at this time.

Most long-term investors feel that the rescue process isgoing to take a long time; meanwhile financial problems are expected to spreadto Spain, Portugal and Ireland. This would mean that notonly will the new rescue plan cover Greece, but it will have to includethe aforementioned nations. At this time the credibility of the Euro and theEuropean Union are at stake.

The British Pound is under pressure at the mid-session. Theunwinding of short Euro/Long British Pound spreads is helping to pressure the Sterling. In addition,investors are still nervous that the U.K. economy faces the same fate asthe Greek economy if it doesn’t shore up its budget deficit. Traders are alsonervous that the upcoming election may result in a hung parliament which couldthwart the efforts of the government to establish a plan to fix the U.K.’s fiscalproblems.

After surging to the upside, the USD CHF has turnednegative. The rising Euro is helping to pressure the Dollar/Swiss as this movelessens the chances of an intervention by the Swiss National Bank. The SNB mayact, however, if volatility gets to high.

The strong surge in U.S. equity markets is helping todrive the USD JPY sharply higher. Because of the Euro move and the possibilitythat Greecemay get the much needed financial aid it needs, traders have taken riskconcerns off the table and are putting funds in higher yielding assets. Tradersare borrowing the Yen to invest in the higher yielding U.S. Dollar.

Oversold conditions are helping to contribute to the rise inthe USD CAD. Traders for the most part are ignoring the rise in equities, goldand crude oil. Wednesday’s closing price reversal bottom has been confirmed.The chart pattern suggests the next upside objective is 1.0072 to 1.0106. Thisis most likely a short-term rally. Earlier this week, the Bank of Canada saidit would begin raising rates sooner than previously expected.

The AUD USD is trading lower but mounting a small comebackinto the mid-session. A downtrend is developing in the Aussie currency becauseinvestors are unsure of the Reserve Bank of Australia’s next move because ofmixed economic data. Traders may also be gearing up for a possible revaluationof the Chinese Yuan which is supposed to be bearish for Australian exports.

The NZD USD is trading better at the mid-session. The weaker Aussie is encouraging traders tounwind long Aussie/short Kiwi spreads. Traders also feel that the Reserve Bankof New Zealandis next in line for an interest rate hike since the Australian central bank hasbeen hiking rates for several months and the Bank of Canada is pledging a ratehike in June. Technically, this market found support on an uptrending Gannangle at .7080. A close over .7124 will be a sign of strength. A huge breakoutover .7199 is likely if upside momentum continues.

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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