Greenback Gains on Low Volume; Investors Shedding Risk

The U.S. Dollar finished higher against most currencies onMonday, driven by a weak outlook for the global economic recovery.

The U.S. Dollar finished higher against most currencies onMonday, driven by a weak outlook for the global economic recovery.

The EUR USD fell further on Monday as sentiment shifted awayfrom risky assets. Despite the light volume and low volatility, sellersdominated the market all day. The weak close has this market in a position totest a major 50% price level at 1.2605. A failure to hold this level means abreak to 1.2433 is likely.

Without any major economic reports until late in the sessionand several large trading groups out of the markets until after Labor Day,volatility may be down throughout the week. On Thursday, Bernanke gives aspeech at the central bankers gathering at Jackson Hole, WY.This speech has the potential to move the markets depending on what he says andwhat he doesn’t say.

After an early attempt to breakout to the upside, the GBPUSD ran into sellers who quickly pushed this pair to the bearside of a pair ofGann angles. Fundamentally, traders are concerned the new austerity measureswill slow down the recovery.

At the close the British Pound is trading on the bear sideof an uptrending Gann angle at 1.5569 and on the bear side of a downtrendingGann angle at 1.5557. This price cluster was pierced early in the session, butthe move did not attract any follow-through buying.

Although the Gann angles are indicating developing weakness,it looks as if an acceleration to the downside is likely to start following aclose under a minor .618 level at 1.5457. Once this area is penetrated, thecharts indicate the market can go into a free fall because the next majordownside level is 1.5113.

The USD JPY remains inside the main range of 84.73 to 86.37,but below the mid-point of this range at 85.55, indicating impending weakness.The fact that we’ve sat inside this range for six trading sessions also meansto expect volatility. The only problem is no one is sure which way the marketwill move although traders appear to be leaning toward the short side.

Investors have been factoring in the possibility of anintervention by the Bank of Japan, but so far no such decision has beenforthcoming. This is creating the uncertainty in the market. This morning theJapanese government said it would work with the BoJ, but this came as nosurprise to veteran investors who truly believe the government has had its handin just about every major policy decision. Nevertheless, investors lighten upbets calling for an intervention as flight to safety buying of the Yen tookover once again.

The Australian Dollar gapped lower overnight due topolitical uncertainty stemming from unclear election results over the week-endand the possibility of a hung parliament. Weak shorts most likely lightened uptheir positions on the news. The lack of follow-through to the downsidetriggered a short-covering rally into the mid-session, but this rally alsofailed before the market traded lower into the close.

Traders are a little confused as to which side of the marketto take. Technically, this market could rally back to .9030 where it will mostlikely be sold. The charts also indicate there is plenty of room to thedownside, with a 50% level at .8644, a likely target.

In my opinion the traders are waiting to see if a compromisecan be reached before taking a side. This is how the U.K. elections were settled, whichled to almost immediate stability in the government, triggering a long-termrally. Traders are hoping a similar solution will be reached in Australia.

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: