Commodity-Linked Currencies Could See More Selling Pressure

The drop in demand for risky assets pressuredthe commodity-linked New Zealand, Australian and Canadian Dollars onMonday. The AUD USD chart suggests that downside momentum is building whichshould drive this market through the most recent bottom at .8067.

The drop in demand for risky assets pressured thecommodity-linked New Zealand,Australian and Canadian Dollars on Monday. The AUD USD chart suggests thatdownside momentum is building which should drive this market through the mostrecent bottom at .8067. The main trendturned down in the NZD USD late last week and continued lower on Monday.Downside momentum should be enough to carry this market to .6560 over thenear-term. The Dollar/CAD finished flat but should rally on Tuesday if U.S.equity markets continue to break.

Talk of a drop in overall demand for raw materials andcommodities because of a slowdown in the global economy is likely to keepdownside pressure on all commodity-linked currencies over the near-term. Thecool-off in China’seconomy is expected to create a huge drop in demand for crude oil, gold andother industrial metals. This should mute the growth of the Aussie economy.Last month the Reserve Bank of Australialeft interest rates unchanged. Based on the recent action in the AustralianDollar, it looks as if investors are already expecting the RBA to sit on itshands in July.

A late session plunge in U.S. equity markets helped the U.S.Dollar surge into the close as traders sought shelter in the safe havengreenback and sold off higher risk assets and higher yielding currencies.

The U.S. Dollar was trading mixed against most majorcurrencies after trading sharply higher during a volatile overnightsession. The main concerns for investorstoday has been the thought that Friday’s weak U.S.employment report was a sign the economy is still mired in slow growth and thenewly announced debt problems in Hungary.

The Euro finished lower after a mostly sideways trade in New York. The overnightfollow-through to the downside following Friday’s sharp sell-off put thismarket in an oversold position leading to a conflict between the fundamentaltraders who believe that lower prices are coming and the technical traders whofeel the market needs to retrace over the short-run to set up fresh selling.

Technically, the Euro is in a down trend. The chart patternsuggests that the two old bottoms at 1.2143 to 1.2153 could become a wall ofresistance. Watch for support to continue to erode down to 1.1623.

The GBP USD traded slightly better after earlier weakness.This currency pair is trading inside of a retracement zone at 1.4499 to 1.4435.The main trend is down, but this market may be trying to form a secondaryhigher bottom which could indicate the start of a fresh rally. A close over1.4499 will be a sign of strength. A close under 1.4435 will indicate furtherweakness.

The direction of the U.S. equity markets is controllingthe movement in the USD JPY. Stronger equity markets means greater demand forrisk and a higher Dollar/Yen. Risk aversion will weaken the Dollar/Yen. The keyprice level to watch is the 50% price at 91.61. This price is acting as a pivottoday.

The late break in the U.S. stock indices sent JapaneseYen sellers scrambling to cover late into the close. This helped the USD JPYfinish below 91.61, setting up the potential for lower markets on Tuesday.

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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