Strong Intel Earnings Drives Euro Higher into Close

The U.S. Dollar is plunging into the close driven sharplylower this late in the session by the news that semiconductor chip maker Intelblew out quarterly revenue and profit guesses in its second-quarter results.

The U.S. Dollar is plunging into the close driven sharplylower this late in the session by the news that semiconductor chip maker Intelblew out quarterly revenue and profit guesses in its second-quarter results.

Investor sentiment has turned extremely positive followingthe release of the Intel data, driving up demand for higher risk currencies.This sharp increase in appetite for risk is likely to set the tone for afurther drop in the Dollar overnight and renewed selling pressure when thestock markets open higher in New Yorktomorrow morning.

Tuesday’s rally was initially led by the British Pound andthe commodity-linked currencies. A turnaround early in the trading session alsounderpinned the Euro after a weaker start.

Traders drove up U.S. equity markets throughout theday in anticipation of Tuesday’s quarterly earnings report from Intel. Equitymarkets opened higher this morning bolstered by good earnings news from Alcoaand CSX Corp on Monday.

The Euro mounted a strong turnaround after a Moody’sdowngrade Portuguese debt drove it lower overnight. The initial reaction to thenews was to the downside, but investors decided to ignore this news and focuson U.S.earnings instead. The fast about face in the Euro took it through the recenttop at 1.2722 following a two-day set-back, leading to a resumption of theuptrend and putting the market back on pace to challenge the major retracementzone at 1.2784 to 1.2998.

A report showing U.K. inflation had risen promptedthe start of a short-covering rally in the British Pound overnight whichcarried over into the day session. Traders now believe that inflation couldbecome the key issue which derails the U.K. recovery unless the centralbank acts upon it. Today’s initial rally indicates that investors may be pricingin a possible rate hike by the Bank of England.

After finding support twice this week on an uptrending Gannangle, the Sterlingclosed in a position to challenge the recent top at 1.5240. A drive throughthis level will turn the main trend back to up on the daily chart and set upthe market for a further rally to the late April top at 1.5523.

After surprisingly trading lower most of the session, theUSD JPY mounted a strong recovery late in the session driven by soaring U.S. equitymarkets to post a slight gain for the day. With stock markets expected tocontinue to rally on Wednesday, look for the Dollar/Yen to continue to rally asstock players renew their interest in higher yielding assets and the carrytrade.

Strong rallies in equities, crude oil and gold helped pushthe USD CAD lower on Tuesday. Although the Dollar/CAD is trading inside of abroad range, pressure is on this currency pair to drive the market into thelower end of this range.

The AUD USD rallied on Tuesday driven higher by increasedappetite for risk. Technically the strong close has put this currency in aposition to challenge the .618 retracement level at .8883. A drive through thislevel should trigger stops and an acceleration to the upside. Strong support isbeing provided by an uptrending Gann angle currently at .8727.

Since the beginning of the month, following a string ofworse than expected U.S.economic news, Forex investors have been selling the Dollar. Now, expectationsof robust earnings during the second quarter have shifted investor sentiment,pressuring the Dollar even further. With 10-Year Treasuries hovering near3.00%, investors are hungry for better returns and are flocking to the stockmarket. Although economic reports have been poor, investor sentiment can be astrong market driver.

After bearish fundamental events in Europe throughout theSpring and concerns about China’sgrowth, foreign investors see great opportunity in the U.S. markets without the high level of risk seenin Asia and Europe. This could help trigger amonth long rally in U.S.equities while sending the Dollar spiraling lower until at least the first weekin August.

Another key sign in the market today was the turnaround inthe Euro following the downgrade of Portugal’s debt. Although thisevent may have been factored into the market, today’s turnaround served as asign that market participants are no longer easily rattled by bearish news. Thenext key event, however, will be the release of the European bank stress tests.Downside momentum may slow in the Dollar a few days leading up to the releaseof this data, but it seems like it is going to take a blockbuster surprise toderail the Euro at this time.

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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