Easing Tensions helping to Support Euro

The EUR USD is trading higher this morning, but stillstruggling with a Fibonacci retracement level at 1.2345. Regaining this pricewill be the key to igniting a surge to the upside.

The EUR USD is trading higher this morning, but stillstruggling with a Fibonacci retracement level at 1.2345. Regaining this pricewill be the key to igniting a surge to the upside.

At this time, last week’s reversal bottom at 1.2143 is stillholding with what appears to be a support base being built. This is actuallypositive action because the bigger the support base, the higher the market cango if there is renewed buying interest.

Shorts are clearly in control of the Euro at this time, butthey don’t seem to be pounding the currency at current levels. These tradersremain poised to drive this market lower, provided there is fresh news to whichto react. Earlier in the week, the Euro sold off on news that the Spanishgovernment had taken over an ailing bank. On Wednesday, the Euro weakened onrumors that Chinawas readying to sell Euro-denominated bonds. Both events failed to trigger anew low in the Euro. This indicates that there may be a stopper in the marketor that hedge funds and large institutions are beginning to prefer sellingrallies rather than weakness.

Continue to look for downside pressure to remain on the Euroover the long-run, but watch how this market reacts as it nears the low at1.2143. If selling subsides and the Euro regains 1.2345, then look for a strongshort-covering rally to develop. Keep in mind, however, that the main trendwill remain down until the last swing top at 1.2671 is violated.

Easing tensions in the Euro Zone are helping to boost demandfor higher risk assets. Since last week, the Euro has been trying to form abottom but has been met by both fundamental and technical obstacles in theprocess. On Wednesday, rumors that China was re-evaluating itsEuro-denominated bond portfolio sent the single-currency lower along with crudeoil and stock indices. Overnight trading was another story however.

Last night China’sforeign exchange reserves manager denied a news report that it was consideringthe sale of some of its holdings of Euro-denominated bonds. This helped the Euro rebound, sending theDollar lower against most currency-linked commodities. With the Dollar tradinglower, demand for higher risk assets rose.

Stronger demand for higher yielding assets is helping todrive up the commodity-linked Australian, New Zealand and Canadian Dollarswhile pressuring the lower-yielding Japanese Yen.

The AUD USD is trading higher this morning, underpinned bythe stronger global equity markets. The charts indicate that there is plenty ofroom to the upside with a possible retracement to .8727 to .8883 likely overthe short-run.

The NZD USD has confirmed the closing price reversal bottomat .6560. The daily chart indicates that this market could retrace back to.6942 over the near-term.

Strong crude oil is helping to pressure the USD CAD. Onceagain this market has rejected the former top at 1.0738. Downside momentum isbuilding which could drive this market to 1.0481 to 1.0394 over the near-term.

Increased demand for higher yielding assets is helping toboost the USD JPY. Trading has been quiet lately which indicates impendingvolatility. Watch for a surge in U.S. equities to trigger a quickrally back to 91.61 over the near-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