Equity Market Break Weakens AUD USD

A hard break in U.S. equity markets this morning ishelping to weaken the AUD USD. After testing a downtrending Gann angle at .9317early in the session, the Aussie began to weaken when stock indices failed tofollow-through to the upside.

A hard break in U.S. equity markets this morning ishelping to weaken the AUD USD. After testing a downtrending Gann angle at .9317early in the session, the Aussie began to weaken when stock indices failed tofollow-through to the upside.

The Aussie was boosted overnight on increased appetite forrisk and the possibility of an interest rate hike by the Reserve Bank of Australia atits next meeting on May 4th. Since reaching a four-week low earlier in the weekat .9135, the Australian Dollar has gone on a tear, retracing in two-days abreak which took eleven days to form.

Earlier in the month, prospects for a May interest rate hikewere diminished following a report stating that mortgage approvals haddeclined. This led traders to believe that the RBA would skip an interest ratehike at its next session. The subsequent break from the high at .9387 was afurther indication that a bearish pall was being cast on the Aussie.

After the top was formed on April 12th, the market proceededto zig-zag its way down to .9135 on April 27th. Although the initial move wastriggered by the weak mortgage approvals report, the final low was set-up byrisk fears during the height of the Greek fiscal crisis.

The recent bottom at .9135 was fueled by a report thatinflation had doubled during the last quarter. This reignited thoughts that theRBA would have to hike interest rates once again in order to combat the effectsof high inflation.

On Thursday, the AUD USD tested the retracement zone of the.9387 to .9135 range at .9261 to .9291. After a slight penetration of this zoneovernight, the Aussie met resistance at a slow-moving downtrending Gann angleat .9317. This angle has held on two previous attempts to breakout above it tothe upside.

At the mid-session, lower demand for higher risk assetscombined with selling pressure following the test of resistance are puttingpressure on the Aussie. The daily chart indicates the possibility of a minorclosing price reversal top. Furthermore, traders are watching .9261 verycarefully. A break through this level late in the trading session could triggeran acceleration to the downside.

At the mid-session, the EUR USD is up but well off its high.Although the EU feels that a bailout agreement with Greece will be reached thisweek-end. Some traders feel that there is too much risk to hold a long positionuntil Monday. Most traders feel that more downside risk exists in the Eurobecause of lingering problems in the Euro Zone with Spain,Portugal and Ireland.

After an initial surge to the upside overnight, the GBP USDis trading lower. Traders were buying in response to the strong showing at thedebate by the Conservative Party. Some traders feel that the emergence of aleader less than a week before the May 6th election will reduce the possibilityof a hung parliament.

The British Pound began to weaken following the release ofthe U.S. GDP report. Although this report showed the economy had expanded by3.2%, it fell short of the expected retracement of 3.3%.

Another victim of the drop in appetite for higher riskassets is the Canadian Dollar. Today’s rally in the USD CAD was triggered byThursday’s comments from the Bank of Canada’s Mark Carney. In what is amountingto a “verbal intervention”, Carney said that the high priced currency couldhave an impact on inflation and monetary policy. The USD CAD stopped going downon his commentary, indicating that the BoC may be in the market attempting tocurtail the Canadian Dollar’s advance.

Technically, the USD CAD is threatening to breakout to theupside. Downtrending Gann angle resistance at 1.0177 is being tested at themid-session. A breakout over this angle is likely to trigger an acceleration tothe last main top at 1.0215. A move through this price changes the main trendto up on the daily chart.

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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