U.S. Dollar edges Slightly Higher on Spain Fears, Economic Growth Worries

The U.S. Dollar edged slightly higher against most majorcurrencies on Wednesday as investors pared positions in higher risk currencieson economic worries and Spainconcerns.

The U.S. Dollar edged slightly higher against most majorcurrencies on Wednesday as investors pared positions in higher risk currencieson economic worries and Spainconcerns.

Overnight it was reported that the International MonetaryFund, the European Union and the U.S. Treasury were establishing a line ofcredit for Spain.This news raised concerns that Euro Zone sovereign debt issues were still outthere despite the recent moves by the E.U. to establish stability in theeconomic region. Traders pared positions overnight in the Euro and risky assetsas a precaution.

This morning the U.S. reported that Housing Starts fell10% in May. This news created worry that the U.S. housing market was headed fora double-dip recession. Stocks broke on the news and the Dollar rallied astraders looked for protection. Later in the morning, a U.S. industrialproduction report showed a 1.2% rise in May. This news helped stabilize currencymarkets which led to a midday retracement back to the overnight highs.

After falling to follow-though to the upside after anovernight rally, the EUR USD closed lower for the day. The chart patternsuggests the formation of a weak closing price reversal top pattern. Thispattern occurs when the market makes a higher-high, lower-close but the closeremains near the high of the day. It may develop into a more serious top, butwould have to take out 1.2254 in order to confirm the move. Should weaknessdevelop then look for a break back to at least 1.2114.

The direction in the Euro will be determined by theseriousness of the Spaindebt situation. So far officials seem to be taking precautionary measures byestablishing a line of credit for the country. Earlier this week, the marketabsorbed the news that Moody’s was downgrading Greek debt. If investors feelthat the move to help Spainis old news then look for the Euro to continue to work higher.

Technically, the Euro is closing in on a main top at 1.2453.A move through this price will turn the main trend up on the daily chart andmost likely generate enough upside interest and short-covering to trigger afurther move to a 50% price level at 1.2784.

The GBP USD closed sharply lower after posting a new movehigh early in the session. Technically, today’s action appears to be a reactionto the test of a 50% retracement level at 1.4810. The closing price reversaltop formation suggests the possibility of a minor retracement to 1.4599 or amajor retracement to 1.4541.

A mixed bag of employment data helped trigger the sell-offin the British Pound. This morning it was reported that British workersclaiming jobless benefits in May fell by a larger-than-expected amount whilethe unemployment rate in the three months through April rose to 7.9%.

The slight break in the Euro and technical factors helpeddrive the USD CHF away from its early session low. Although it still closedlower, the Dollar/Swiss appears to be forming a short-term bottom mainly due tooversold conditions.

This morning the Dollar/Swiss stopped breaking at anuptrending Gann angle at 1.1249 inside of a retracement zone at 1.1326 to1.1231. Regaining the upper-end of this range will indicate strength and thepossible start of a short-covering rally. The near term objective if this casedevelops will be 1.1489 to 1.1546.

After selling off early in the trading session on renewedEuro Zone debt concerns and weak U.S. economic data,commodity-linked currencies came roaring back at the mid-session only to finishlower for the day.

Following the drop in the Euro overnight and the weakerglobal equity markets, the Australian, New Zealand and Canadian Dollarswere under pressure as traders sold off higher risk assets. The weakness wasn’ta surprise to technical traders who came into the day feeling these markets hadreached overbought levels.

After an early set-back driven by the weaker U.S. equitymarkets, commodity-linked currencies made a comeback as stock prices shruggedoff earlier weakness to move higher for the day.

The Australian Dollar tried to breakout to the upside at themid-session but settled back due to the lack of fresh buying. The daily chartindicates the main trend is up with .8727 the most likely upside target, butconditions could change due to Wednesday’s weak closing price reversal top. Ifthe reversal is confirmed, then watch for the start of a correction back to.8377 to .8307. Traders should watch the Euro and the U.S. equitymarkets for direction. If risk concerns are renewed in Europeand investors shed risky assets, then look for the start of a retracement.

The New Zealand Dollar turned positive ahead of themid-session but was unable to hold onto its small gain. Wednesday morning’sweakness triggered a test of a 50% level at .6942 which attracted some buyingearly. The charts indicate that holding this level is significant because itmay set up a test of the .618 level at .7033. The first sign of weakness willbe the failure to hold .6942. If this area fails, then look for the start of abreak to .6795.

Stronger equity and commodity markets helped support theCanadian Dollar early in the session, but failed to do so into the close. TheUSD CAD is currently in a position to weaken further after failing tofollow-through to the upside following Monday’s closing price reversal bottomat 1.0223. A move through this level could trigger stops and trigger anacceleration to the downside. The last main bottom at 1.0110 remains apotential downside target.

The inability to break through 1.0223 indicates that theremay still be some buying interest at this level. The direction of theDollar/CAD is being controlled by outside markets at this time. Pressure fromfalling equity and oil prices could help drive the Canadian Dollar lower.

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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