Investors Divesting Out of Euros

The EUR USD fell to a new low for the year, in effect,wiping out the $1 trillion bet placed by the European Union over the week-end.Now that the short-term fix has been eliminated by the market action, thedowntrend can resume its normal course.

The EUR USD fell to a new low for the year, in effect,wiping out the $1 trillion bet placed by the European Union over the week-end.Now that the short-term fix has been eliminated by the market action, thedowntrend can resume its normal course. It looks at this point that the EU andIMF are out of bullets so buckle your seatbelt. The European Central Bank maytry to get creative by slashing interest rates to zero, but this move is likelyto wear off quickly as it would indicate that it expects the Euro Zone to showno growth over the near-term. Thursday’s downside action also demonstrated thatthe hedge funds and large traders remain fearless.

The GBP USD traded sharply lower on Thursday after breakingthrough a short-term retracement zone at 1.4763 to 1.4695. Earlier in the week,the British Pound rallied following the announcement of the formation of a newgovernment. Reality set in rather quickly shortly after this event as investorsbegan to realize that austere financial measures will be necessary to cut thebudget deficit and reduce the sovereign debt. On Wednesday the Bank of Englandannounced that economic growth will be slow over the next two years. This newsalso pressured the British Pound. Downside momentum appears strong enough todrive this market into last week’s low at 1.4474

The weaker Euro helped to boost the USD CHF. The currentchart formation suggests that the new low in the Euro is likely to lead to abreakout to the upside through the recent top at 1.1246. A new main bottom hasbeen formed at 1.0923. A trade through this price will turn the main trenddown.

Weaker equity markets and the fear that the problems in theEuro Zone will slow down economic growth helped to pressure the USD JPY.Traders shed higher risk assets most of the trading session driving investorsinto the safety of the lower yielding Japanese Yen. It now appears that the Dollar/Yen is likelyto remain under pressure until either the U.S. begins to raise interest ratesor normal demand for higher risk assets returns to the market.

The USD CAD was under pressure most of the night, buttraders began paring losses once equity markets started to show signs ofweakness. A break through the recent bottom in crude oil also contributed to thismorning’s turnaround. June Crude Oil is in a position to break sharply whichcould trigger a strong short-covering rally in the Dollar/CAD.

Technically, the Dollar/CAD formed a closing price reversalbottom. Based on the current formation, watch for a rally to 1.0423 over thenear-term.

The Australian Dollar firmed up overnight after a reportshowed that the economy added a greater-than-expected 33,700 jobs in April.This was good news for the Aussie because it shows that the economy is growingdespite six interest rate increases. The pre-report estimate was for anincrease of 22,500 jobs. Prior to last night’s jobs data report many tradersfelt that the Reserve Bank of Australia’sseries of interest rate cuts were slowing down the economy. The new jobs numbermay be an indication that the economy may be able to handle another hike.

Technically, the Aussie appears to be building a supportivebottom which could trigger a further rally into a retracement zone at .9047 to.9228. A slowdown in demand for higher yielding assets or a sharp break in U.S. equitymarkets however is likely to make traders forget about an interest rate hikeand resume the recent downtrend.

The NZD USD traded higher overnight, partially because ofthe strength in the Australian Dollar and because of the increase in thecountry’s business main index from 56.7 to 58.9. Technically, this currencyremains rangebound between .7325 to .7007. This makes .7166 to .7203 a keyretracement zone. The close under the 50% price at .7166 puts this market inweak position and should encourage further selling pressure especially if the U.S. stockindices collapse.

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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