Euro Weekly Chart indicates Investors Still Nervous

Despite signs of a bottom on the daily chart, the Eurofinished lower for the week. The daily chart is reflecting a short-coveringrally; the weekly chart is indicating that investors still lack the convictionto turn the Euro into a buy.

Despite signs of a bottom on the daily chart, the Eurofinished lower for the week. The daily chart is reflecting a short-coveringrally; the weekly chart is indicating that investors still lack the convictionto turn the Euro into a buy.

On Friday the EUR USD closed 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.

A hard break in U.S. equity markets Friday helped toweaken the AUD USD. After testing a downtrending Gann angle at .9317 early inthe 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.

Lower demand for higher risk assets combined with sellingpressure following the test of resistance put pressure on the Aussie. The dailychart indicates the formation of a minor closing price reversal top whichshould put additional pressure on the Aussie early next week. If sentimentshifts away from risk next week, then it really isn’t going to matter what theRBA does. Downside pressure will resume on the Aussie.

After an initial surge to the upside overnight, the GBP USD brokefrom its high. Traders were buying in response to the strong showing at thedebate by the Conservative Party. Some traders felt that the emergence of aleader less than a week before the May 6th election would reduce thepossibility of 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%. For the week, the British Pound closed lowerwhile changing the trend to down. Expectations are for this market to sell-offinto the election with 1.5078 the next potential downside target.

Another victim of the drop in appetite for higher riskassets was the Canadian Dollar. Friday’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 was tested on Friday. Thisangle can easily be taken out on the Monday’s opening. A breakout over thisangle is likely to trigger an acceleration to the last main top at 1.0215. Amove through this price changes the main trend to up on the daily chart.

The USD CHF closed higher for the week after a breakout to a10-week high. The close back below the former top at 1.0897 was triggered bythe turnaround in the Euro. Swiss National Bank President Phillip Hildebrandsaid that Europe must find a quick settlementto Greek financial problems in order to return stability to the region. He alsosaid “Switzerlandhas enormously benefited from currency stability over the past decade. It’sobvious that a threat to this stability would pose big risks.”

Hildebrand’s comments signal that the SNB remains poised tocontinue to intervene by selling Swiss Francs in order to defend its currency’sstability and to protect the country’s export market. This means continue tobuy the USD CHF on Euro weakness.

The USD JPY closed flat for the week but lower on Friday.After an early attempt to breakout to the upside failed, the Dollar/Yen soldoff sharply as the stock market deteriorated. The weak close in this pairindicates that further downside pressure is likely with 93.08 the target. Watchfor weakness early next week especially since the U.S. equity markets posted majorweekly closing price reversal tops. Traders are ignoring the weak Japaneseeconomy and turning their focus on an increase in demand for lower yieldingassets.

The NZD USD finished the week sharply higher despite aprofit-taking break from its high on Friday. Although the Reserve Bank of New Zealandvoted to leave interest rates unchanged this week, most traders believe the centralbank is getting ready to begin increasing interest rates sooner than expected.In addition, it looks as if traders began reversing long AustralianDollar/short New ZealandDollar spread. The interest ratedifferential played a role in this week rally also. With the Fed stating thatinterest rates would remain low for “an extended period” and the RBNZ hintingthat rates would rise, traders began to take advantage of the high rates in New Zealand.This week’s action indicates that investors believe the RBNZ will begin raisinginterest rates before the Fed.

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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