All Eyes on Stress Tests Today; European Economy Shaping Up

The strong economic data from Europe this weekis helping to renew confidence in a global economic recovery while the U.S. stillstruggles with the possibility of a double-dip recession.

The strong economic data from Europe this week is helping torenew confidence in a global economic recovery while the U.S. stillstruggles with the possibility of a double-dip recession. Traders have beenpunishing the Dollar late this week as the combination of dovish testimony fromFed Chairman Bernanke and robust economic news from Europe means interest rateswill remain low in the U.S.while the Euro Zone grows closer to an interest rate hike. Investors,frustrated by the low returns offered by U.S. Treasury instruments are seekingbetter returns in equities, commodities and commodity-linked currencies.

Without any major economic reports today, investors willturn their focus early in the session to U.S. earnings reports then shifttheir interest to the European stress tests sometime around noon Eastern Time.

Investors are still questioning what the European stresstests will reveal. Some traders feel the tests may have been too soft to yieldany significant results. Others expect the tests to show weakness in some banksespecially in Spain and Greece.Overall, the tests will show that European banks need to raise capital.

The EUR USD has formed a new main bottom at 1.2732. The maintrend is up and upside momentum indicates this market is poised to breakoutover the last swing top at 1.3028. A trade through this level will not onlyreaffirm the uptrend, but will also take out a Fib retracement level at 1.2998.Piercing this area will set up the Euro for more upside action as the next keyresistance price does not come in until 1.3342.

The strong rally in the GBP USD has put the Pound in aposition to take out the last main top at 1.5471. This move will reaffirm themain uptrend but also put the market in a position to challenge the April topsat 1.5497 to 1.5523.

Demand for higher risk is expected to underpin thecommodity-linked currencies today. The rally is being led by the AustralianDollar, followed by the New Zealand and Canadian Dollar. As long asinterest rates are expected to remain low in the U.S. and the central banks fromthese three countries are raising rates, look for the Dollar to remaindefensive.

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