Hedge Funds Dump Australian Assets

Hedge funds and large traders dumped assets in Australia and New Zealand on the thought thatdemand for higher yielding assets and commodities would fall as the Euro Zoneissues shut down the global recovery.

The AUD USD was down sharply, testing levels not seen sinceSeptember 2009. The Monthly Australian Dollar chart is beginning to lookbearish. Today’s confirmation of the secondary lower top at .9405 indicatesthat shorts are gaining control of the market. Based on the monthly range of.6008 to .9405, the next possible downside target is .7706.

The NZD USD was also down sharply. The monthly swing chartsuggests a move to .6496 is likely by August. The Kiwi also changed the trendto down on the monthly chart. This pattern suggests a 50% correction to .6263is likely. Although both patterns don’t agree on the price objective, they bothindicate the trend is decisively down.

The Euro reversed earlier weakness to form a daily closingprice reversal bottom. This pattern sets up the start of a possible 2 to 3 dayrally to 1.2742.

The weakness Wednesday morning was triggered by yesterday’snews that 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. Rumors also helped to fuel the reversal. Talk wascirculating that the Swiss National Bank was behind the rapid turnaround. Thethought was that the SNB grew tired of selling the Swiss Franc so it decided tobuy the Euro instead. This rumor has not been substantiated. In addition,shorts may have panicked on the thought that perhaps the European Central Bankwas going to begin a round of intervention of its own.

Lower equity prices hurt the USD JPY early in the session.Traders sold higher risk assets while seeking shelter in the lower yieldingJapanese Yen. Last week the Dollar/Yen made a range of 94.98 to 88.25. Thisrange creates 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. The close above this level indicates thata short-term bottom may have been formed.

The USD CAD closed up but off its high. Lower demand forhigher risk assets helped to apply the upside pressure. Based on the range of1.0738 to 1.0110, the retracement zone at 1.0424 to 1.0498 was today’s target.The high end of this range was penetrated earlier in the session on strongmomentum, but a slow down in buying brought the market back below it. Wednesday’s close over the 50% level at1.0424 indicates there is still strength in the current pattern. A close overthe .618 level at 1.0498 will put in it in a strong position to rally further.The strong reversal in crude oil could be indicating a bottom. If crude rallieson Thursday, look for the USD CAD to be under pressure.

Hedge funds and large traders dumped assets in Australia and New Zealand on the thought thatdemand for higher yielding assets and commodities would fall as the Euro Zoneissues shut down the global recovery. The AUD USD was down sharply, testinglevels not seen since September 2009. The NZD USD was 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

Disclainer: