Aussie Weekly Close Suggests Higher Markets to Follow

The Australian Dollar finished the week sharply higher. TheAussie got a boost early in the week when the Reserve Bank of Australia announced that interest rates wouldremain unchanged this month but that the policymakers will not hesitate toraise rates despite concerns over growth prospects in China.

The Australian Dollar finished the week sharply higher. TheAussie got a boost early in the week when the Reserve Bank of Australia announced that interest rates wouldremain unchanged this month but that the policymakers will not hesitate toraise rates despite concerns over growth prospects in China.

The strong close in the Aussie has put the market in aposition to rally higher next week. The first upside target will be the oldmain top at .8858. A move through this level will turn the main trend to up onthe daily chart and should trigger an acceleration to the upside.

The USD CAD was a big loser today. The Canadian Dollarstrengthened earlier in the session when the government released a better thanexpected jobs report for June. This news is a strong sign that the Bank ofCanada will raise interest rates a second time in late July. Since theU.S./Canadian has been range bound for several months, traders see this marketas one with great opportunity because of the possibility of a breakout move.

The U.S. Dollar traded mixed against most major currencieswith the exception of the Canadian Dollar and New Zealand Dollar. Tradersseemed to shy away from riskier currencies throughout the day despite a strongerequity market. Some of this weakness was attributed to end of the weekprofit-taking, but many traders believe confusion over whether to follow theeconomic reports or the bank stress test rumors is encouraging investors topare positions.

Early weakness in global equity markets helped to pressurethe Euro and the commodity-linked currencies which they never recovered fromdespite a turnaround in U.S.equity markets. Risk sentiment seems to have shifted overnight with investorsbecoming more risk averse. Profit-taking and position squaring ahead of thestart of the U.S.earnings season appeared to be the catalyst behind this morning’s earlyweakness.

The Euro is trading inside of major retracement zone at1.2609 to 1.2782. The current chart pattern suggests a developing daily closingprice reversal top. This could lead to the start of a 2 to 3 day break. At thistime 1.2609 is holding as support. A failure to hold this level could triggerthe start of an acceleration to the downside. Should a reversal top form, lookfor a short-term correction to 1.2400.

The movement in the GBP USD signaled a change in trend todown on the daily chart following a break through the main bottom at 1.5080.The current chart pattern suggests the start of a correction to 1.4734 to1.4615 is possible.

Traders have been pressuring the British Pound since earlyThursday when it a drop in home prices was announced. This was an indicationthat the economy is still weak. Also on Thursday the Bank of England announcedthat interest rates would remain unchanged at historically low levels.Investors may have decided to pare positions after a strong rally in the Sterling because ofuncertainty about how the new government and the Bank of England will worktogether.

The new government is pushing financial austerity measuresdesigned to cut costs and possibly raise taxes while the central bank is tryingto keep the recovery going. Holding interest rates low may encourage expansionbut may also lead to higher inflation. The government and the central bank haveto find a way to coordinate their efforts so that the country’s financesstabilize while maintaining positive growth. This is the challenge that couldbe causing worries amongst traders.

With the start of earning’s season next week, there is thestrong possibility that U.S.equity markets will rally. This should underpin the USD JPY. Wednesday’sreversal to the upside is also a strong sign that this currency pair is readingfor a sharp short-covering rally.

Technically the Dollar/Yen chart suggests there is room tothe upside with 90.97 a possibility. The strength in a U.S. stock market rally willdetermine how high this currency pair moves.

A shift toward higher risk assets is likely to keep downside pressure on the Japanese Yen as investors renew their interest in thecarry trade.

This week showed that appetite for risk is back. This meansthat a rally next week in the equity markets is likely to continue to underpinthe Euro and the commodity-linked currencies while pressuring the Japanese Yen.Next week is also the start of earnings season which could mean an increase involatility due to rapid shifts in the U.S. stock markets.

Although the European bank stress test results are not dueto be released until July 23rd, Euro traders are still unconcernedabout what these results will yield. A comment by European Central BankPresident Trichet on Thursday about banks having to raise capital could weighon traders minds, thereby slowing down the pace of the gains in the Euro.

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

Disclainer: