Rising Stocks, Commodities Trigger Turnaround in Euro

The Euro rallied late in the trading session after an earlysession setback. Advances by U.S. stocks andcommodities triggered a surge in demand for riskier assets.

The Euro rallied late in the trading session after an earlysession setback. Advances by U.S. stocks andcommodities triggered a surge in demand for riskier assets.

The EUR USD started the week strong but overboughtconditions and fresh concerns about the European banking system following adowngrade of BNP Paribas by Fitch stopped the rally, triggering a technicalclosing price reversal top.

Later in the week, fresh economic data showing a slowdown inthe U.S.economy and a dovish comment by the Federal Reserve helped stabilize the Euro,forcing it to trade in a range most of the week.

Investors seemed to shed Dollars in favor of the Euro mostof the week after the Fed comments and poor U.S. housing data signaled thatinterest rates would remain low for a long time. Some are beginning to feelthat Europe’s move to austerity may actually strengthened the Euro Zone economybefore the U.S.gets its economy back on track.

Technically the Euro finished lower for the week but in aposition to move either way. The main trend on the daily chart is up, but valueis a concern for investors. This means that it may still be vulnerable to anear-term break into a retracement zone at 1.2171 to 1.2102. If appetite forrisk continues to increase however, these traders waiting for a cheaper Euromay be left in the dust of the next up leg.

Friday’s rally helped form a new higher main bottom at1.2209. This could mean the market is set up to move higher. A drive throughthe last main top at 1.2467 will solidify the uptrend and could trigger abreakout to the upside. The only thing standing in the way of an all outbreakout to the upside is a pair of downtrending Gann angles at 1.2522 and1.2591. Once these angles are cleared, look for the Euro to complete its weeklychart retracement to 1.2609 to 1.2782.

The GBP USD posted a strong gain this week buoyed by therelease of the new U.K.budget and signs of a weaker economy in the U.S.

U.K.traders rallied the British Pound after the new government announced its budgetplans, complete with calls for higher taxes and severe spending cuts. Tradersaccepted this news because it represents a better plan than the previousgovernment. Even though some feel the spending cuts will hurt the economy inthe short run, the long-term outlook for the U.K. economy looks a lot better.

Technically, the GBP USD is in an uptrend and looking strongafter it blew through a key resistance zone this week at 1.4810 to 1.4947. Anew main bottom was formed at 1.4686, creating further evidence that the buyingwas greater than the selling. Despite all of the strong action on the dailychart, the weekly chart is still in a downtrend making this market vulnerableto periodic short-term corrections.

Like the Euro, some investors feel the new budget proposalby the U.K.government has the British economy on track for a faster recovery than the U.S.Additional support for the British Pound this week also came from the news inthe Bank of England minutes that one committee member voted for a hike ininterest rates. The dovish tone in the Fed announcement suggests that itscommittee still feels that the U.S.economy is not ready for an interest rate hike. This could help underpin the Sterling 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

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