Technically overbought conditions are helping the USD JPY
give back gains following a huge surge to the upside on Friday.The Dollar rallied sharply higher after
better than expected U.S.
jobs data pointed toward the possibility of the Fed raising rates sooner than
The reversal of carry trade positions also helped send the
USD JPY to levels not seen since early November.The friendly employment numbers forced
traders to buy U.S. Dollars to pay back borrowed funds and short borrowed
Japanese Yen.Last week, the Bank of
Japan helped put in the top in the Japanese Yen when it announced another
stimulus package.The BoJ seems to be
leaning toward a less expansionary policy while the Fed readies to
tighten.This should help the Dollar
gain ground on the Yen.
Technically, the USD JPY is trading inside of a 92.32 to
84.83 range.Last Fridayâ€™s rally
exceeded the retracement zone of this range at 88.57 to 89.46 before finding
resistance at a downtrending Gann angle at 90.51.The overnight action suggests that a pullback
to 87.80 - 87.10 is possible.Up
trending Gann angle support is at 87.83.
Last week, the U.S. Dollar posted a huge gain versus a
basket of major currencies.The strong
up move was triggered by a better than expected Non-Farm Payrolls Report which
showed a decrease in the unemployment rate from 10.2% to 10%.The pace of job losses also declined and
there was a revision to the better in October.
Traders bought the Dollar on the thought the Fed would begin
accelerating its process of reducing stimulus measures while gearing up to
raise interest rates sooner than previously expected.
Technically, the move in the Dollar appears as a spike on
the charts, but it did lay the foundation for a further rally this week by
taking out the previous weekâ€™s high at 75.66.The weekly chart is the one to watch for the best change in trend
indicator.At this time the main trend
will turn up when this index crosses the November top at 77.50.
The short-term range is 77.50 to 74.27.The retracement zone of this range at 75.89
to 76.27 is near-term resistance.Weâ€™ve
seen this move before three times before over the past 6 months.In June the index rallied from 79.12 to 82.34
or 3.22 points.In August the index
rallied 77.83 to 79.92 or 2.09.Finally,
in October, the index surged from 75.08 to 77.50 or 2.42. This means that the
current rally has to exceed 76.36, 76.69 and 77.49 in order to overbalance the
previous rallies. Basically, the shorts have to sweat until 77.50 is taken out.
Last week, the EUR USD finished lower.Overnight, the main trend turned down on the
daily chart on the break under 1.4801.The break under a retracement zone at 1.4884 to 1.4823 also indicates
weakness.The possibility of the Fed
raising rates before the European Central Bank is triggering the selling
pressure in the Euro.Last week, the ECB
voted to leave interest rates unchanged.It also initiated a hawkish stance when it announced it would begin
phasing out its stimulus programs. Additional selling pressure hit this market
when ECB President Trichet said he wanted to see a stronger Dollar.
The GBP USD is under pressure overnight after closing lower last
week. While the Fed. and the ECB are gearing up to begin phasing out stimulus
and raising interest rates, the U.K.
is still struggling to exit from its recession.
The current daily chart pattern is bearish now that a lower
top has been formed at 1.6720.The main
range is 1.5706 to 1.6878 with a retracement zone at 1.6292 to 1.6154.This zone is the next likely downside
target.Additional support comes in at
three main bottoms at 1.6271, 1.6261 and 1.6250.A trade through 1.6271 turns the main trend
down.On December 10th, the Bank of
England meets to discuss monetary policy.Look for interest rates to remain unchanged while the BoE leaves its
asset buyback program intact.
The USD CHF is trading higher overnight. The breakout over
the last swing top at 1.0222 turned the main trend up. The sharp break in gold is
helping to fuel the rally. While the Fed is thinking about raising rates to
stem inflation, the Swiss National Bank is still worried about deflation.This means that an intervention by the SNB is
not out of the question.The situation
will be clarified when the central bank meets on December 10th.
The Bank of Canada meets this week on the 8th.Look for it to keep interest rates unchanged
at 0.25%.It may address last weekâ€™s
surprise hike in the number of jobs added.This may trigger a short-term rally, but gains are likely to be limited
if the BoC expresses concerns about the impact of a higher currency on
Technically, this market is still trading inside of two
ranges.The main range is 1.0991 to
1.0205.This creates a range at 1.0598
to 1.0691.The shorter-term range is
1.0205 to 1.0870 with a retracement zone at 1.0537 to 1.0459.
Weak demand for higher yielding currencies should pressure
the AUD USD this week
Traders are concerned that a hike in U.S. interest
rates will cause the Aussie to lose its appeal as a higher yielding asset. Last
week the Reserve Bank of Australia
raised its benchmark interest rate 25 basis points to 3.75%, but Governor
Stevens hinted the RBA may take a break from further hikes because inflation is
in check. This news coupled with the possibility of a Fed hike will shrink the
interest rate differential between the two countries. Look for the USD AUD to
challenge the main bottom on the weekly chart at .8905.
The main trend is down on the NZD USD weekly chart.The trend turned down two weeks ago when this
pair broke .7081. A new lower top has been formed at .7523.At its next meeting on December 9th, the
Reserve Bank of New Zealand
is expected to hold interest rates at 2.50 percent.It may also adopt a dovish stance as it
addresses a deteriorating labor market while reiterating its stance to hold
rates down until the 3rd quarter 2010.The charts indicate that there is plenty of room to the downside with
.6560 a possibility by the week-ending December 25th.
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