Euro Could Form Secondary Higher Bottom; Reversal Bottoms Still Unconfirmed

The EUR USD traded sharply lower overnight and early in thesession as nervous traders reacted to the news that Spain’s government had takeover astruggling financial institution. The heavy selling pressure last night wasalso a sign that short-traders were still lurking out there with their fingerson the sell button.

The EUR USD traded sharply lower overnight and early in thesession as nervous traders reacted to the news that Spain’s government had takeover astruggling financial institution. The heavy selling pressure last night wasalso a sign that short-traders were still lurking out there with their fingerson the sell button.

This action triggered fear that sovereign debt problems werespreading across Europe. Shortly after the U.S.opening, the Euro began to stabilize after testing a daily chart .618retracement level at 1.2345. Regaining the 50% level at 1.2407 will put theEuro in a strong position to rally into the close.

From a technical perspective, today’s action was not bad.Following last week’s daily/weekly reversal bottoms the market was expected toconfirm these patterns with a follow-through rally, but instead the bad newsdrove the market back down into a retracement zone. If last week’s bottom isgood, then a secondary higher bottom should begin forming in this retracementzone. In other words, stopping between 1.2407 and 1.2345 will be the firststrong indication that buyers are stepping in. The first leg of the bottomingprocess is usually short-covering; the second leg is when the buyers step up.

The GBP USD traded a little lower after confirming a newtwo-day main bottom at 1.4229. Based on the new range formation, look for thestart of a possible rally to 1.4810 over the near-term. The announcement thismorning of new budget cuts was received positively because it is a sign thatthe new government is willing to work swiftly to help shore up the U.K.’sbudget deficit and huge debt obligation..

After earlier weakness, the USD JPY strengthened after the U.S.stock market firmed. Earlier in the session, investors were selling theDollar/Yen in anticipation of a flight-to-safety rally. The recovery rally inthe U.S.stock market has helped ease demand for lower yielding assets. Traders are also a little nervous aboutholding long Yen because of the threat of a government intervention.

Stronger gold prices and a recovery in the U.S. equity markets helped topressure the USD CAD. On Friday, the Dollar/CAD found solid resistance at anold top at 1.0738. The new range formation indicates that this currency ispoised to retrace back to 1.0430.

The recent strength in the Dollar/CAD was not related to anybad economic news out of Canada.Investors were dumping higher risk assets because of expected lower demand ofCanadian resources. The Canadian banking system and economy are still in prettygood shape compared to the rest of the world. Speculators were merelylightening up long positions in anticipation of a slow down in demand forCanadian resources should the world enter another recession. Watch gold andcrude oil for direction.

The Australian Dollar finished lower but in a position toconfirm Friday’s closing price reversal bottom with a rally through .8365. Atrade through this price will put the AUD USD on pace to test a 50% level at.8728. With the trend still down, this type of formation usually leads to a 2to 3 day rally. This indicates that excessive volatility is likely to hit theAussie over the next few days. A failure to trigger a confirmation of thereversal bottom will be a strong indication that this market is in the hands ofstrong short-sellers.

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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