Oversubscribed Spanish Bond Auction Drives Euro Higher

The U.S. Dollar is trading down against all major currenciesthis morning, driven lower by increased demand for higher risk assets. Riskappetite is strong this morning following the news that last night’s SpanishBond auction overnight was oversubscribed, easing tensions about renewedsovereign debt issues in the Euro Zone.

The U.S. Dollar is trading down against all major currenciesthis morning, driven lower by increased demand for higher risk assets. Riskappetite is strong this morning following the news that last night’s SpanishBond auction overnight was oversubscribed, easing tensions about renewedsovereign debt issues in the Euro Zone.

This morning’s good news has erased worries that the Dollarwas preparing to strengthen after several consecutive weak days. The U.S.Dollar edged slightly higher against most major currencies on Wednesday asinvestors pared positions in higher risk currencies on economic worries and Spain concerns.Now that tensions have eased about Spain,traders will focus on the slate of U.S. economic reports today.

The first reports this morning are the Weekly Initial Claimsand Consumer Price Index. New jobless claims are expected to fall to 450K thisweek versus last week’s figure at 456K. Economists peg CPI at -0.1% and CoreCPI at 0.1% for May. In keeping with the Fed’s outlook, traders want to seeimprovements in the job market and low inflation. Signs that the U.S.economy is improving may help to increase demand for higher risk assets.

Later in the morning, the U.S. will report Leading Indicatorsand the Philadelphia Fed number. Leading Indicators should show an increase of0.5% versus a loss of 0.1% in April. The June Philly Fed is expected to show aslight setback from 21.4 in May to 20.0 for June. Once again better thanexpected numbers are likely to trigger increased appetite for risk.

Aside from the news this morning affecting Spain and theeconomic reports, technical factors are being closing watched by foreigncurrency traders.

The EUR USD negated Wednesday’s minor reversal top with lastnight’s outside move to the upside. The trend is still down but the market isgetting close to testing and perhaps exceeding the last main top at 1.2453. Amove through this level will turn the main trend to up. The weekly chart isstill indicating the strong possibility of a rally to 1.2784 over thenear-term.

The GBP USD followed-through to the downside afterWednesday’s closing price reversal top. Bearish traders had attempted to drivethe market into 50% support at 1.4599. The bullish news out of Spain helpedturn the British Pound around before it could reach this forecasted supportlevel. The market will try to develop a bullish tone today by overtaking a key50% level at 1.4810. Now that the main trend is up, traders expect the Sterling to mount astrong rally with 1.4947 the next major objective.

Overnight selling pressure is driving the USD CHF sharplylower this morning. The rally in the Euro is helping to ease concerns about thelikelihood of another Swiss National Bank intervention. Last night theDollar/Swiss broke through an uptrending Gann angle/Fibonacci retracementcombination, triggering an acceleration to the downside. The charts indicatethat 1.1064 is the next likely downside target.

Commodity-linked currencies are trading better this morningbut in very tight ranges. The Australian, New Zealand and Canadian Dollars seem to be holding steadyahead of this morning’s U.S.economic reports. Although these markets firmed on the news about the SpanishBond auction, traders are going to want to see good U.S. economic numbers drive thestock market higher before committing to the long-side.

The USD CAD is holding steady at the recent bottom at1.0223. Holding this level could trigger a short-covering rally to 1.0394. Adrive through this price could trigger a sharp acceleration to the downside toa May bottom at 1.0110.

A pick-up in demand for risky assets should be supportivefor the AUD USD. The charts indicate that .8727 is the next likely upsidetarget. A drop in equity prices today, however, could trigger the start of acorrection back to .8377.

Overnight the NZD USD once again found support at a 50%level at .6942. Holding this price is essential to the current rally. A failureto hold this developing support zone could trigger the start of a retracementto .6796. Watch for an acceleration tothe upside through the .618 retracement level at .7033.

Today’s trading action will be all about risk sentiment. Nowthat tensions have eased overnight because of the better than expected SpanishBond auction, traders will renew their focus on the U.S. economy. If today’s reportsshow growth, then look for stocks to rise along with demand for higher riskassets. Weak reports are likely to trigger a flight to safety rally in the U.S.Dollar.

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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