Friday April 30, 2010 - 18:46:52 GMT
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Equity Market Break Weakens AUD USD
A hard break in U.S. equity markets this morning is
helping to weaken the AUD USD. After testing a downtrending Gann angle at .9317
early in the session, the Aussie began to weaken when stock indices failed to
follow-through to the upside.
The Aussie was boosted overnight on increased appetite for
risk and the possibility of an interest rate hike by the Reserve Bank of Australia at
its next meeting on May 4th. Since reaching a four-week low earlier in the week
at .9135, the Australian Dollar has gone on a tear, retracing in two-days a
break which took eleven days to form.
Earlier in the month, prospects for a May interest rate hike
were diminished following a report stating that mortgage approvals had
declined. This led traders to believe that the RBA would skip an interest rate
hike at its next session. The subsequent break from the high at .9387 was a
further indication that a bearish pall was being cast on the Aussie.
After the top was formed on April 12th, the market proceeded
to zig-zag its way down to .9135 on April 27th. Although the initial move was
triggered by the weak mortgage approvals report, the final low was set-up by
risk fears during the height of the Greek fiscal crisis.
The recent bottom at .9135 was fueled by a report that
inflation had doubled during the last quarter. This reignited thoughts that the
RBA would have to hike interest rates once again in order to combat the effects
of high inflation.
On Thursday, the AUD USD tested the retracement zone of the
.9387 to .9135 range at .9261 to .9291. After a slight penetration of this zone
overnight, the Aussie met resistance at a slow-moving downtrending Gann angle
at .9317. This angle has held on two previous attempts to breakout above it to
At the mid-session, lower demand for higher risk assets
combined with selling pressure following the test of resistance are putting
pressure on the Aussie. The daily chart indicates the possibility of a minor
closing price reversal top. Furthermore, traders are watching .9261 very
carefully. A break through this level late in the trading session could trigger
an acceleration to the downside.
At the mid-session, the EUR USD is up but well off its high.
Although the EU feels that a bailout agreement with Greece will be reached this
week-end. Some traders feel that there is too much risk to hold a long position
until Monday. Most traders feel that more downside risk exists in the Euro
because of lingering problems in the Euro Zone with Spain,
Portugal and Ireland.
After an initial surge to the upside overnight, the GBP USD
is trading lower. Traders were buying in response to the strong showing at the
debate by the Conservative Party. Some traders feel that the emergence of a
leader less than a week before the May 6th election will reduce the possibility
of a hung parliament.
The British Pound began to weaken following the release of
the U.S. GDP report. Although this report showed the economy had expanded by
3.2%, it fell short of the expected retracement of 3.3%.
Another victim of the drop in appetite for higher risk
assets is the Canadian Dollar. Todayâ€™s rally in the USD CAD was triggered by
Thursdayâ€™s comments from the Bank of Canadaâ€™s Mark Carney. In what is amounting
to a â€śverbal interventionâ€ť, Carney said that the high priced currency could
have an impact on inflation and monetary policy. The USD CAD stopped going down
on his commentary, indicating that the BoC may be in the market attempting to
curtail the Canadian Dollarâ€™s advance.
Technically, the USD CAD is threatening to breakout to the
upside. Downtrending Gann angle resistance at 1.0177 is being tested at the
mid-session. A breakout over this angle is likely to trigger an acceleration to
the last main top at 1.0215. A move through this price changes the main trend
to up on the daily chart.
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