S&P Downgrade Sends Euro Plunging

The Euro plungedsharply lower and threatened to take out the recent bottom at 1.3201 after theS&P Corp. lowered Greece’sratings to below-investment grade and cut Portugal’s long-term ratings fromA+ to A-.

The Euro plunged sharply lower andthreatened to take out the recent bottom at 1.3201 after the S&P Corp.lowered Greece’s ratings tobelow-investment grade and cut Portugal’slong-term ratings from A+ to A-. The cut to junk status by S&P Corp, isanother sign that conditions are expected to worsen. Adding Portugal to the mix indicates thatthe rating service believes the crisis is spreading and the outlook remainsnegative.

What the S&P downgrade has effectivelydown was give permission to the hedge funds to continue to aggressively shortthe Euro. It has also served as awarning to Ireland and Spain to gettheir finances in order. Furthermore, the downgrade also signals that theS&P Corp. is not going to wait for the European Union and the InternationalMonetary Fund to reach a decision regarding the bailout package for Greece.

Hedge funds are most likely licking theirchops over the downgrade news. It seems at times they have taken heat forexasperating the situation in Greece,but with today’s downgrades, it appears their shorting activity has beenvindicated.

The announcements by the S&P Corp. sentU.S.stock markets sharply lower while substantially lowering demand for higher riskassets. Commodity linked currencies such as the Australian Dollar, New ZealandDollar and Canadian Dollar broke sharply lower on the news while demand forlower risk assets drove the Japanese Yen higher.

From a technical perspective, tradersshould watch for the EUR USD to take out the recent bottom at 1.3201. The last two times the Euro made a new lowfor the year an announcement came out to trigger a short-covering rally. Thistime no such announcement is expected so the Euro is likely to accelerate tothe downside.

Pressure from the Euro is also driving downthe GBP USD. This news comes on the heels of bearish economic reports overnightas well as a shift in the polls which indicates no clear winner is emerging 10days before the election. This is making traders nervous because it may lead toa hung parliament which would curtail any attempts to fix the budget deficit.

The news that is breaking the Euro is alsodriving the USD CHF higher. Traders are now anticipating the Euro Zone’seconomic problems to spread to the Swiss economy. In addition, tradersanticipate the Swiss National Bank to be a little more active in theintervention market in an effort to protect its economy and the Swiss exportmarket.

In one day the USD JPY had retraced morethan 50% of the 91.59 to 94.35 range to .92.97. Greater demand for lower riskassets is helping to drive the Japanese Yen higher. Traders are dumping stocksand repatriating funds back to Japanin an effort to repay borrowed funds.

Weaker Gold and Crude Oil are helping todrive the USD CAD sharply higher. After forming a closing price reversal bottomat .9929 late last week, the Dollar/CAD has found nothing but buying supportfrom institutions and banks. Today’s strong action has this market in aposition to challenge the recent top at 1.0215. A breakout over this level willturn the main trend higher. Look for upside momentum to continue if investorscontinue to dump higher priced assets.

The drop in demand for higher priced assetsis helping to drive the AUD USD sharply lower. This morning the Aussie plungedthrough 50% support at .9194 and seems well on its way to the .618 level at.9148. The firing of sell stops under a pair of Gann Angles at .9221 and .9230also helped trigger an acceleration to the downside. Watch for a change intrend to down on the daily chart if the Aussie breaks the last swing bottom at.9157.

After breaking through a pair ofretracement levels on Monday and signaling an upside breakout, the NZD USD hasreversed course and is now feeling selling pressure. A shift in risk sentimentout of higher yielding currencies is causing today’s break. Although thismarket bounced off of an uptrending Gann Angle at .7097 this morning, thisangle has clearly been identified as the key breakdown point. A move throughthis angle is likely to trigger an acceleration to the downside.

On April 28th, the Reserve Bank of New Zealandwill announce its interest rate decision and policy statement. Althoughinterest rates are expected to remain the same this month, talk has beencirculating that the policymakers are likely to release a more hawkishstatement and may actually be planning to raise interest rates sooner thanexpected. Today’s trading action seems to be indicating that traders arereducing risk in the Kiwi as sentiment is shifting away from risk. Look forthis market to settle between .7124 to .7199 until market volatility calms.Should more negative news hit the markets regarding Greece then look for furtherdownside pressure.

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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