Renewed Euro Zone Issues, Korean Conflict Weaken Euro

The U.S. Dollar is trading higher as renewed Euro Zoneissues and a potential conflict between North and South Korea are driving investorsinto the safety of the greenback.

The U.S. Dollar is trading higher as renewed Euro Zoneissues and a potential conflict between North and South Korea are driving investorsinto the safety of the greenback.

The Dollar rose sharply higher overnight on renewed fears inthe Euro Zone and rising tensions between North Korea and South Korea. The buying spree started early whenAsian traders began liquidating equities on war concerns between the Koreannations and quickly spread to Europe and the U.S. as these two regions continuedto struggle with the spreading debt issues in the Euro Zone.

Comments from the International Monetary Fund helpedaccelerate the decline in European markets. On Monday, the IMF warned that Spainmust do more to accelerate the consolidation of its banking system and tooverhaul its labor laws and government pension systems. Despite remainingupbeat about the soundness of Spain’sbanking system, traders read this comment as a negative and began buying theU.S. Dollar while seeking shelter in lower yielding currencies.

Technically the EUR USD failed to hold a minor retracementzone at 1.2407 to 1.2345. This sets up a test of last week’s low at 1.2143.Downside momentum indicates that the market may test this level today unless itregains the retracement zone. A new main top has been formed at 1.2671 on thedaily chart. A drive through this level will turn the main trend to up.

The GBP USD is taking its cues from the Euro. The weakeningEuro is spreading fear to British Pound traders. Bearish traders believe thatthe U.K. will face similarproblems as Greece and Spain if itdoesn’t get its financial house in order. The overnight weakness indicates thatlast week’s low at 1.4229 may be violated today. If this occurs, then 1.4527will become the new main top.

Falling global equity markets are helping to drive up demandfor the Japanese Yen, putting downside pressure on the USD JPY. Traders areliquidating higher risk assets while seeking shelter in lower yielding currencies.Losses seem to be limited by the threat of a possible intervention by theJapanese government. This currency pair could drop sharply if U.S. equitymarkets take a plunge.

The uptrend in the USD CAD was reaffirmed overnight as themarket drove through the recent swing top at 1.0738. Liquidation of higher riskassets is the major reason behind today’s strength. Risk adverse traders areselling equities and crude oil, driving down the Canadian Dollar. Unless thereis a shift in this scenario, look for the rally to continue throughout the day.Watch for new support to form at 1.0739.

Falling demand for higher risk assets is helping to drivethe AUD USD lower this morning. Downside momentum is building which couldpressure this market all the way back to the major 50% level at .7706.

The NZD USD is trading sharply lower overnight. Liquidationof higher risk assets and the threat that the Euro Zone debt issues will derailthe economic recovery in New Zealand are the main causes behind theweakness. Downside momentum is building which could drive this market down tothe 50% level at .6263 over the intermediate term.

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