The Euro plunged sharply lower and threatened to take out
the recent bottom at 1.3201 after the S&P Corp. lowered Greeceâ€™s ratings to below-investment grade and
long-term ratings from A+ to A-. The cut to junk status by S&P Corp, is
another sign that conditions are expected to worsen.Adding Portugal to the mix indicates that
the rating service believes the crisis is spreading and the outlook remains
What the S&P downgrade has effectively down was give
permission to the hedge funds to continue to aggressively short the Euro.It has also served as a warning to Ireland and Spain to get their finances in
order. Furthermore, the downgrade also signals that the S&P Corp. is not
going to wait for the European Union and the International Monetary Fund to
reach a decision regarding the bailout package for Greece.
Hedge funds are most likely licking their chops over the
downgrade news. It seems at times they have taken heat for exasperating the
situation in Greece,
but with todayâ€™s downgrades, it appears their shorting activity has been
The announcements by the S&P Corp. sent U.S. stock
markets sharply lower while substantially lowering demand for higher risk
assets. Commodity linked currencies such as the Australian Dollar, New Zealand
Dollar and Canadian Dollar broke sharply lower on the news while demand for
lower risk assets drove the Japanese Yen higher.
From a technical perspective, traders should watch for the
EUR USD to take out the recent bottom at 1.3201.The last two times the Euro made a new low
for the year an announcement came out to trigger a short-covering rally. This
time no such announcement is expected so the Euro is likely to accelerate to
Pressure from the Euro is also driving down the GBP USD.
This news comes on the heels of bearish economic reports overnight as well as a
shift in the polls which indicates no clear winner is emerging 10 days before
the election. This is making traders nervous because it may lead to a hung
parliament which would curtail any attempts to fix the budget deficit.
The news that is breaking the Euro is also driving the USD
CHF higher. Traders are now anticipating the Euro Zoneâ€™s economic problems to
spread to the Swiss economy. In addition, traders anticipate the Swiss National
Bank to be a little more active in the intervention market in an effort to
protect its economy and the Swiss export market.
In one day the USD JPY had retraced more than 50% of the
91.59 to 94.35 range to .92.97. Greater demand for lower risk assets is helping
to drive the Japanese Yen higher. Traders are dumping stocks and repatriating
funds back to Japan
in an effort to repay borrowed funds.
Weaker Gold and Crude Oil are helping to drive the USD CAD
sharply higher. After forming a closing price reversal bottom at .9929 late
last week, the Dollar/CAD has found nothing but buying support from
institutions and banks. Todayâ€™s strong action has this market in a position to
challenge the recent top at 1.0215. A breakout over this level will turn the
main trend higher. Look for upside momentum to continue if investors continue
to dump higher priced assets.
The drop in demand for higher priced assets is helping to
drive the AUD USD sharply lower. This morning the Aussie plunged through 50%
support at .9194 and seems well on its way to the .618 level at .9148. The
firing of sell stops under a pair of Gann Angles at .9221 and .9230 also helped
trigger an acceleration to the downside. Watch for a change in trend to down on
the daily chart if the Aussie breaks the last swing bottom at .9157.
After breaking through a pair of retracement levels on
Monday and signaling an upside breakout, the NZD USD has reversed course and is
now feeling selling pressure. A shift in risk sentiment out of higher yielding
currencies is causing todayâ€™s break. Although this market bounced off of an
uptrending Gann Angle at .7097 this morning, this angle has clearly been
identified as the key breakdown point. A move through this angle is likely to
trigger an acceleration to the downside.
On April 28th, the Reserve Bank of New Zealand
will announce its interest rate decision and policy statement. Although
interest rates are expected to remain the same this month, talk has been
circulating that the policymakers are likely to release a more hawkish
statement and may actually be planning to raise interest rates sooner than
expected. Todayâ€™s trading action seems to be indicating that traders are
reducing risk in the Kiwi as sentiment is shifting away from risk. Look for
this market to settle between .7124 to .7199 until market volatility calms.
Should more negative news hit the markets regarding Greece then look for further
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