Euro Continues to Rally; Shorts Getting Buried in Surprise Reversal

The Euro is trading higher at the mid-session after making asurprise reversal bottom earlier in the session. If conditions remain the same,then look for the EUR USD to complete a daily close price reversal which wouldset up the start of a possible 2 to 3 day rally to 1.2742.

The Euro is trading higher at the mid-session after making asurprise reversal bottom earlier in the session. If conditions remain the same,then look for the EUR USD to complete a daily close price reversal which wouldset up the start of a possible 2 to 3 day rally to 1.2742.

The weakness this morning was triggered by yesterday’s newsthat Germanywas banning naked short-selling of certain assets. Traders sold the Euro hardas they speculated that the action by Germany was a sign that there wastrouble in the banking system.

After traders failed to push the Euro down to what manyconsider to be the next objective at 1.20, weak shorts quickly covered drivingthe market higher. Rumor also helped to fuel the reversal. Talk was circulatingthat the Swiss National Bank was behind the rapid turnaround. The thought wasthat the SNB grew tired of selling the Swiss Franc so it decided to buy theEuro instead. This rumor has not been substantiated. In addition, shorts mayhave panicked on the thought that perhaps the European Central Bank was goingto begin a round of intervention on its own.

Lower equity prices are hurting the USD JPY. Traders areselling higher risk assets and seeking shelter in the lower yielding JapaneseYen. Last week the Dollar/Yen made a range of 94.98 to 88.25. This rangecreates a 50% price level at 91.61. At this time the Dollar/Yen feelscomfortable at this balance point on the chart. It also seems to be taking onthe characteristics of a pivot price. A close under this level indicatesweakness.

The USD CAD is trading higher at the mid-session by off itshigh. Lower demand for higher risk assets is helping to apply the upsidepressure. Based on the range of 1.0738 to 1.0110, the retracement zone at1.0424 to 1.0498 was the upside target. The high end of this range waspenetrated earlier in the session on strong upside momentum, but a slow down inbuying has since brought the market back below it. This market needs to closeover the 50% level at 1.0424 in order to remain strong. A close over the .618level at 1.0498 will put in it in a strong position to rally further.

Hedge funds and large traders are dumping assets in Australia and New Zealand on the thought that demandfor higher yielding assets and commodities will fall as the Euro Zone issuesshut down the global recovery. The AUD USD is down sharply, currently testinglevels not seen since September 2009. The NZD USD is also down sharply. Thechart indicates a change in trend to down on the monthly chart with aretracement to .6263 likely over the next few months.

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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