Commodity-linked Currencies Fall Sharply Led by Australian Dollar

All of the commodity-linked currencies were downhard on Wednesday. The Australian Dollar was down the most because of itsstrong link to China.Downside momentum is building in this market which could trigger a test of thelast main bottom at .8904.

All of the commodity-linked currencies were down hard onWednesday. The Australian Dollar was down the most because of its strong linkto China.Downside momentum is building in this market which could trigger a test of thelast main bottom at .8904. Ultimately, this market seems destined to test amajor 50% price level at .8644.

The flight to safety rally sent investors into the JapaneseYen. Buyers stepped in however after the Yen reached a 15 year low. Talk iscirculating that the Japanese government may attempt to intervene. Its biggestconcern at this time is that a rise in the Yen will hurt exports. Thisexpectation coupled with talk of lower demand from Chinaand the U.S.will hurt the economic recovery.

The British Pound was down over 1% on Wednesday as worriesabout a slowdown in the economy forced investors to wonder if the U.K. economicrecovery was slowing down.

Overnight the Bank of England lowered its forecast forgrowth expectations in its quarterly inflation report. The BoE cited decliningconfidence, tight credit conditions and the government’s planned austeritymeasures as the main reasons for the reduction in its outlook. In May, thecentral bank forecast about 3.6% growth. The revised number is 3%.

Although the U.K. Gross Domestic Product was more thanexpected during the second quarter, a key central bank official indicated thatthe total growth for the year would most likely average out.

In a statement, BoE Governor Mervyn King said, “business andconsumer sentiment have shown signs of softening, measure of financialfragility remain elevated, and there is great uncertainty about the outlook forboth the United Statesand our most important trading partner, the euro area.”

This statement cast on pall on the British Pound and theEuro, triggering hard sell-offs in both of these markets.

The Sterlingchanged its daily trend to down on Tuesday when it took out its last swingbottom at 1.5819. Today this market tested a key 50% level at 1.5635. Althoughan intraday technical bounce took place, triggering a small short-coveringrally, this level is not likely to hold. The major downside objective is anuptrending Gann angle from the 1.4229 bottom at 1.5429.

The slide in the Euro continued on Wednesday with this pairlosing over 2%. A slowdown in the global economy is expected to hit the EuroZone particularly hard especially since it is barely recovering from thesovereign debt crisis from sixty days ago.

Technically, the main trend on the daily chart turned downearlier in the week. Downside momentum is strong and selling pressure hard, butshort-term indicators are indicating this market is getting close to oversold.The bigger charts indicate this market is likely to continue down until itreaches a major retracement level at 1.2605. Short-term, however, there may bea technical bounce at an uptrending Gann angle at 1.2836. This angle is beingtested overnight. If profit-takers come into the market, then watch for a snapbackrally to 1.3085 before the selling resumes.

Continue to look for the mass exodus out of higher riskcurrencies to continue, however investors should watch for quick short-coveringrallies in most of the major currencies because of short-term oversoldconditions. This first break in the British Pound and Euro may be only longliquidation. The chart patterns suggest there may be one more rally to testtheir recent highs. This move will give fresh shorts an opportunity to re-enterthe market.

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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