Euro Touches 1.3105; Weak Equity Markets Trigger Volatile Trading Session

The Euro surged to 1.3105 for the first time since Mayshortly after U.S.equity markets opened, but was unable to hold this level as stocks correctedsharply during the trading session. The subsequent break triggered volatilemoves throughout the session with the market retracing inside the 1.3105 to1.3059 range several times.

The Euro surged to 1.3105 for the first time since Mayshortly after U.S.equity markets opened, but was unable to hold this level as stocks correctedsharply during the trading session. The subsequent break triggered volatilemoves throughout the session with the market retracing inside the 1.3105 to1.3059 range several times.

The EUR USD began to break out to the upside last nightbuoyed by strong European earnings reports and the dim outlook for the U.S. economy.Some traders are factoring in the possibility that the European Central Bankmay be in a position to raise its benchmark interest rate before the Fed actsupon the U.S.borrowing rate.

Technically the Euro is in a strong uptrend. The breakoutabove the last swing top at 1.3028 reaffirmed the trend as well as the crossingof the .618 retracement level at 1.2998. In order to sustain this rally, thecurrency has to close above 1.2998.

The British Pound traded higher but barely held on toearlier gains following a test of a major 50% level at 1.5635. Slowing theSterling’s upside momentum today is a U.K. housing price report which showedthat home values fell in July for the first time in five months. Tighterlending conditions and concerns that government spending cuts will sloweconomic growth were to blame for the drop.

Last week it was reported that the U.K. economy grew more thanexpected during the Second Quarter but that was before the implementation ofnew government austerity measures. Concerns that new taxes and spending cutswill hurt the economy could be the factors which contribute to the start of ashort-term decline. Technically, investors should begin to watch for atechnical closing price reversal top to signal the end of the current rally. Ata time today, the Sterlingwas close to forming a reversal top, but bargain hunters were buyingaggressively on the dips.

The New Zealand Dollar traded weaker versus the U.S. Dollarafter the Reserve Bank of New Zealand hiked its key lending rate by 25basis points to 3.00%. Although this hike was expected, the main reason behindthe weakness is the comment from RBNZ Governor Alan Bollard. The central bankGovernor stated after the report that the “pace and extent” of future increaseswould be more moderate than earlier projected. Investors read this a sign thatthe central bank will refrain from an additional rate hike at its next meetingon September 15.

Technically the Kiwi reached its closing price reversal topobjective at .7211. A normal reaction to this pattern is a 2 to 3 day declineof 50% of the last swing up. Further weakness will be indicated if .7211 failsto hold as support. Weakness in U.S.equities may trigger a further decline on Friday.

Tomorrow the U.S.will release its preliminary Second-Quarter GDP Data. Investors are looking forthis report to reveal a softening economy. Analysts expect U.S. GDP slowed lastquarter to an annual rate of 2.5% from 2.7% in the first. A number showing agreater than expected decrease could drive equity and commodity markets sharplylower, setting off the possibility of a major flight to quality rally in theDollar. Given the recent slew of weak economic data and dim outlook for theeconomy by Fed Chairman Bernanke, this is one report that should be watchedcarefully.

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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