Oversold Conditions help Euro Close Higher

Oversold conditions and the lack of fresh bearish newshelped the Euro turn around and close higher for the day. Fundamentally,nothing happened to change the minds of traders. Investors are still concernedthat the European Union is not doing enough to fix the financial problems inthe Euro Zone.

Oversold conditions and the lack of fresh bearish newshelped the Euro turn around and close higher for the day. Fundamentally,nothing happened to change the minds of traders. Investors are still concernedthat the European Union is not doing enough to fix the financial problems inthe Euro Zone. The lack of confidence in the European Union continues to remainthe major reason behind the selling. Investors want clarity not just ideas fromthe EU. This would include the implementation of new austerity measures by thefive countries at the center of the financial problems: Portugal, Italy,Ireland, Greece and Spain.

Technically, the EUR USD made a daily closing price reversalbottom at 1.2233. A confirmation of this formation on Tuesday could trigger thestart of a rally to 1.2787 to 1.2918. A rally into this zone will not be achange in trend, but is likely to attract fresh selling pressure.

The USD CHF posted a daily closing price reversal top. Thistype of formation sets up a possible correction back to 1.1184 to 1.1123. Thedirection of the Euro will dictate the movement in the Dollar/Swiss.

The recent divestment out of the Euro is putting strongappreciation pressure on the Swiss Franc. The Swiss National Bank fears thatcontinuous selling pressure will hurt price stability and put the Swiss economyat risk. The main concern is damage to the export market will stall theeconomy. SNB President promised to act in a decisive manner which could meananother round of interventions.

The British Pound was under pressure throughout the day, butstill managed to close off its low. Bearish talk was circulating that theprevious government pushed through spending measures which will make the newgovernment’s attempts to cut the U.K. deficit and balance the budgetmore difficult. Pressure is likely to remain on the GBP USD as the newgovernment is likely to propose severe budget cuts and tax increases whichcould put a strain on the economy.

Like the Euro and Swiss Franc, conditions are oversold whichcould mean the start of a 2 to 3 day short-covering rally. Unless there isfresh news regarding the economy, traders should be careful about shorting thePound at current levels.

A late session turnaround in the U.S. equity markets helped turn theUSD JPY higher. Earlier in the session, the Dollar/Yen was under pressurebecause of risk concerns. Once the Euro and stock markets bottomed, tradersstarted to pare their positions in the lower yielding Japanese Yen.

The USD CAD rallied Monday morning but ran into resistanceat a 50% price level at 1.0424. The minor reversal to the downside indicatesthat a 2 to 3 day break is likely. The next downside target is 1.0273 to1.0235. A change in investor sentiment is should put pressure on theDollar/CAD. Traders should watch crude oil and equity prices for direction.Greater demand for risk means greater demand for the Canadian Dollar.

Falling demand for the higher yielding AUD USD and NZD USDhelped to push both of these currency pairs lower. The weak U.S. equitymarkets early in the trading session exerted the most pressure on the Aussieand Kiwi. Downside momentum could drive the Australian Dollar to .8577 over theshort-run. The New Zealand Dollar took out a series of old bottoms and nowappears to have its sight set on a test of the February bottom at .6806.

It’s a long shot but both of these markets could retrace 50%of their recent breaks. This would make .9036 the upside target in the Aussieand .7120 the target for the Kiwi. The catalyst behind such a move will be astrong retracement in U.S.equity markets.

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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