British Pound Firming; Investors Betting on Conservative Party Victory

The GBP USD trading better overnight as investors increasedbets on a victory for the Conservative Party. No matter how the election pansout, traders are counting on the new government to mount a steady attack on thecountry’s huge budget deficit.

The GBP USD trading better overnight as investors increasedbets on a victory for the Conservative Party. No matter how the election pansout, traders are counting on the new government to mount a steady attack on thecountry’s huge budget deficit. This may mean the implementation of new taxesand austere cost slashing. U.K.voters realize that either a Conservative Party or Labour Party victory willmean aggressive action will have to be taken in order to avoid the same fate asthe Euro Zone economies. Last week, both the S&P and Moody’s credit ratingagencies said that a debt rating cut is likely depending on how the newgovernment chooses to attack the country’s fiscal problems.

Technically, the British Pound is trading inside of aretracement zone at 1.5163 to 1.5078. Additional support is being provided byan uptrending Gann angle at 1.5087. The main trend is down, but this marketappears ripe for a short-covering rally. A move above 1.5163 will indicatestrength. Look for a possible acceleration to the downside if 1.5078 fails tohold as support.

The Dollar Index continued to rally overnight, touching itshighest level since May 2009. After spending April trading on both sides of amonthly 50% level, the Index is now in a position to test the .618 price. Basedon the major monthly range of 89.62 to 74.17, traders should look for themarket to test 83.72 over the near-term. This market should continue to remainstrong as long at 81.90 holds as support.

Weaker gold, crude and equities are helping to trigger a furtherrally in the USD CAD. After building a support base in April, this pair finallycrossed a swing top at 1.0215 to turn the main trend to up on the daily chart.Upside momentum indicates that the March 26th top at 1.0302 is the next upsideobjective followed by a 50% level at 1.0366.

The weakening Canadian Dollar is most likely pleasing to theBank of Canada which hinted last week that a strong currency is likely to havean impact on inflation and monetary policy. This led this analyst to believethat the BoC was intervening to weaken the Loonie. Look for the USD CAD tocontinue to strengthen unless there is renewed demand for higher risk assets.

The AUD USD is under pressure overnight due to renewedweakness in the U.S.equity markets. Early Tuesday night the Reserve Bank of Australia hiked its benchmarkinterest rate as expected by 25 basis points to 4.50%.

Based on comments from RBA Governor Glenn Stevens, this islikely to be the last rate hike for a while. Stevens feels that the RBA hasreached its objective by bringing rates back to normal between 4.50% and 5.00%.He further added that he feels inflation was likely to remain in the upper halfof the RBA’s target range.

Besides the weakness in the equity markets overnights andthe falling demand for higher risk commodities, traders also remain a littlecautious as to whether a tighter monetary policy in China will curtail demandfor Aussie goods and services. Based on the main weekly range of .8577 to.9387, traders should look for the Aussie to correct to .8982 to .8886.

The NZD USD is falling in sympathy with the AustralianDollar and a lack of demand for higher yielding assets. Based on this week’spolicy statement by the RBA, many traders now feel the Reserve Bank of New Zealandwill wait until the second half of the year before raising rates.

The chart formation suggests that .7199 is a key pivotnumber. Falling below this level suggests a test of the point .618 level at.7163. The main trend is up and does not turn down unless the swing bottom at.7052 is taken out. The first clue that a change in trend is imminent will bethe breaking of a long-term uptrending Gann angle at .7121.

The Euro continued to trade lower overnight, reaching itslowest level since February 2009. Although a bailout agreement was reached bythe Greek government, the European Central Bank and the International MonetaryFund over the week-end, bearish traders have shifted their focus to the growingfiscal problems in Spain andPortugal.

Hedge fund and large traders continue to press theshort-side. Short-term conditions are oversold, but there is no indication of alet up in the selling pressure. This type of formation typically ends with aclosing price reversal bottom. Traders should start watching the 60-minutechart for clues as to whether bearish conditions are getting ready to shift.

Tomorrow the European Central Bank will hold a meeting.Traders expect interest rates to remain unchanged. The policy statement isexpected to address that fact that rates will remain low for an extended periodof time as the Euro Zone will need time to sort out its financial mess. ECBPresident Trichet is also expected to address the problems in Greece, Portugaland Spain.In his after meeting speech, he is most likely going to try to boost theconfidence in Euro investors.

The weak Euro is sending the USD CHF sharply higher. Traderscontinue to expect the Swiss National Bank to intervene to defend its currency.Based the 12-month range of 1.1965 to .9918, the market is now trading insidethe retracement zone of this range at 1.0914 to 1.1183. Look for this pair tocontinue to strengthen as long as the low end of the range holds with the upperend the next objective. The severely oversold Euro may trigger a short-coveringrally in the Swiss Franc. Aggressive traders have to be careful about chasingthis market higher.

The lack of follow-through to the downside in the U.S. equitiesmarkets is helping to underpin the USD JPY. A turnaround in demand for higheryielding assets is likely to trigger a positive response in the Dollar/Yen witha move through the former top at 94.77 likely. The daily chart indicates that abreak through an uptrending Gann angle at 94.59 is likely to be the first signof weakness and could lead to an acceleration to the downside. A resumption instock market selling pressure should be the catalyst for this break.

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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