Lack of Clarity, Weak Global Outlook Driving Commodity-Linked Currencies Sharply Lower

Traders are dumping higher risk assets at the mid-session,driving commodity-linked Forex markets lower while pushing up demand for thelower yielding Japanese Yen.

Traders are dumping higher risk assets at the mid-session,driving commodity-linked Forex markets lower while pushing up demand for thelower yielding Japanese Yen.

The lack of clarity regarding proposed regulatorylegislation and the surprise curbing of short sales by Germany ismaking investors nervous. Throughout the entire Greek debt crisis, investorshave been looking for clarity and conviction from the European Union. Each timethe EU has made a proposal, they have failed to explain to investors the logicbehind the move. This week’s move by Germany to forbid the shorting ofbank stocks is a good example of what is triggering the fear in the markettoday.

Institutions are confused by the action in Germany becausethe regulators have basically changed the rules of the game. Institutions areworried that the proposed changes in U.S. regulations are going to makeit more difficult to protect risky positions in equity markets. What this meansis large investors are unsure how they are going to hedge their exposure in themarkets and instead have chosen to pare back positions to reduce thepossibility of large losses. Without knowing what the regulators are going toallow them to do, it doesn’t make sense to take on added risk so liquidationseems to be the only viable option.

In addition to confusion over regulatory issues, investorsare blowing out of risky commodity-linked currencies because they feel the EuroZone debt problems are going to derail the global economic recovery. This meansthe real possibility of a global double-dip recession.

Hedge funds and large investors continue to divest out ofthe commodity-linked Australian and New Zealand Dollars. Traders feel that thespread of Euro Zone debt woes will curtail the global recovery and lead to a dropin demand for raw materials.

Technically, downside momentum in the Aussie Dollar couldtrigger a sharp decline to 50% of the October 2008 bottom to the November 2009top. This range is .6008 to .9405 with a minimum target price of .7706.

Based on the monthly main range in the New Zealand Dollar of.4892 to .7635, traders should look for this currency to correct to .6263 ifdownside momentum continues at its current pace.

Falling crude oil is triggering a huge rally in the USD CAD.This morning’s surge has put this market in a position to take out the recenttop on the daily chart at 1.0738. This is a minor point on the long-term chart.A drive through the February 2010 top at 1.0780 is likely to trigger moreshort-covering which will threaten the structure of the bull market in theCanadian Dollar.

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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