Equity Markets Trigger Forex Surge but Markets Fade into Close
An early morning rally in U.S. equity markets sparked a
strong surge in Forex markets on Wednesday but a late session break has many
traders wondering if todayâ€™s rally was just short-covering.
Todayâ€™s equity market rally began when better than expected
earnings from Macyâ€™s and Toll Brothers may have caught traders by
surprise.This triggered a
short-covering response in the thinly traded Forex markets.Based on the overnight action, it looked as
if traders had taken the day off ahead of the FOMC meeting.
Although the rallies in the Forex market merely amounted to
retracements of the recent declines, they demonstrate how fast these markets
can turn without much news when there are no major stoppers in the market.
Even though the Dollar weakened immediately following the
FOMC announcement, by the end of the day the markets had settled down, leaving
open the possibility that todayâ€™s rally may have been short-covering in a
thinly traded session.The inability to
confirm a short-term top in the Dollar tomorrow will be an indication that the
Greenback is poised to move higher.
Despite todayâ€™s rally, the GBP USD remained in a position to
break further following last weekâ€™s news that the Bank of England was going to
expand its quantitative easing program.This bearish fundamental news coupled with the technical closing price
reversal top indicates the potential for more downside action.Todayâ€™s rally amounted to a retrace of the
break from last weekâ€™s top.If the Pound
cannot break through this retracement zone then look for the selling pressure
The Fed said nothing today that would make me think the U.S. economy is
not on a pace to recover from the recession faster than the Euro Zone.Based on this conclusion, the EUR USD is
going to have to offer me more proof that this market is set up to take out
last weekâ€™s high.Todayâ€™s rally looked
like a short-covering rally triggered by a surge in U.S. equity markets.Watch for sellers to show up near the 50%
retracement zone of the recent break.
The USD CAD corrected 50% of the recent rally to
1.0853.This move is a normal part of
the bottoming process.First the market
posts a reversal bottom then a short-covering rally ensues.The next move down is usually 50% of the
first leg up.If this market is truly
bottoming like the fundamentals and the chart pattern suggests then fresh
buyers should start to come in somewhere between 1.0853 and 1.0800.New buying at current levels will help form a
secondary higher bottom and could launch the start of a strong rally to 1.1177.
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