Euro, Risk-Linked Currencies Show No Signs of Letup

The strong rallies in the Euro and the threemajor risk-linked currencies finished sharply higher and near their highs whileshowing no signs of a letup into the close.

The strong rallies in the Euro and the three majorrisk-linked currencies finished sharply higher and near their highs whileshowing no signs of a letup into the close. Whether it was short-covering or freshbuying, investors celebrated good global economic news by driving the U.S.Dollar lower and most major markets higher.

Upside momentum is expected to continue overnight, buttraders will have to face a decision about whether to keep up this robust paceso close to the U.S. Non-Farm Payrolls Report on Friday. In addition, investorsget a chance to assess more U.S.economic data on Thursday including weekly initial claims, Factory Orders andPending Home Sales.

The Euro surged to the upside overnight, taking out the lastswing top at 1.2779 and changing the main trend to up on the daily chart. Basedon the range of 1.3334 to 1.2587, the EUR USD is now set up for a possible testof the retracement zone of this range at 1.2960 to 1.3049. A downtrending Gannangle from the 1.3334 top is at 1.2974, suggesting the formation of aresistance cluster at 1.2960 to 1.2974 today and 1.2954 to 1.2960 on Thursday.

The initial catalyst behind the surge in the Euro overnightwas the bullish PMI news from Chinaand the better than expected growth report from Australia. Both news pieces helpedrally Asian stocks leading to greater demand for risk and subsequently theEuro.

News that the Euro Zone manufacturing recovery hit asix-month low failed to halt this morning’s advance. Overnight it was reported that themanufacturing purchasing managers’ index slowed to 55.1, with “moderated”growth both in output and new orders.

According to the report, the hardest hit country in the EuroZone was Greecewhich is still trying to recover from its financial crisis from the Spring. Germany and France posted “strong growth”. The report also showed that the improvementswere “still centered on Germany,the Netherlands and Austria”.The recovery was “comparatively modest” in Italyand Spain.

Although this report suggests that the region is cooling,the strength in Germany and Franceshould be noted. The weaker countries are likely to bring up this fact at thenext European Central Bank meeting on September 3. ECB members want to beassured that the Euro Region as a whole recovers at a similar pace so that thestronger countries do not dominate the weaker economies.

Despite the change in trend to the upside in the Euro,momentum must continue to remain strong to drive this market to the objectiveminimum objective of 1.2960 over the near-term.

The Dollar declined against the Euro and commodity-linkedcurrencies throughout the New York sessionafter U.S.manufacturing activity showed a surprise improvement last month. This news cameunexpectedly and indicated that despite calls for a double-dip recession, therewere identifiable areas of strength in the economy.

Wednesday’s down move in the Dollar began last nightfollowing the release of stronger economic data from Australiaand China.Investor appetite for risk was whetted with the news, triggering a sharp rallyin the Australian, New Zealand and Canadian Dollars.

Earlier this morning traders shrugged off a weaker thanexpected ADP employment report, signaling that the focus would be on growth.The ADP number suggested that Friday’s U.S. Non-Farm Payrolls Report willlikely be in line with pre-report estimates of a 106K to 120K jobs lost and anincrease in the Unemployment Rate to 9.6%.

Technically the EUR USD changed the trend on the daily chartto up on the move through 1.2779. This sets up the strong possibility of aretracement to a major 50% level at 1.2960. Upside momentum has to continue onThursday to keep this forecast in line. Some traders doubt that the rally was triggeredby real buyers because of thin pre-report and pre-holiday trading.

The AUD USD was a big mover on Thursday, posting a stronggain of over 2.00%. The rally also exceeded a retracement zone at .8995 to.9049. This move sets up a potential rally to a downtrending Gann angle at.9131.

Australian Bonds sold off following the report of a surge inAustralian GDP by 1.2 percent. This was the most rapid pace in three years andled to call for an interest rate hike by the Reserve Bank of Australia at its next meeting onSeptember 7.

The surge in the Australian economy also spilled over to theNew Zealand Dollar, which remained in a downtrend, but was threatening to breakout above the last swing top at .7191.

Finally, the Canadian Dollar benefited from higher crudeoil, a better outlook for the U.S.economy and appetite for risk. Despite the bullishness of Wednesday’s trade,look for the USD CAD to continue to straddle 50% of the main range of .9929 to1.0853.

The strong closes in all the major foreign currenciesindicates that there may be a follow-through rally on Thursday, but there isstill doubt among some traders whether the rallies today in the majors werereal buying or weak shorts getting driven out of the 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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