Euro Weekly Chart indicates Investors Still Nervous
Despite signs of a bottom on the daily chart, the Euro
finished lower for the week. The daily chart is reflecting a short-covering
rally; the weekly chart is indicating that investors still lack the conviction
to turn the Euro into a buy.
On Friday the EUR USD closed 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.
A hard break in U.S. equity markets Friday helped 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
Lower demand for higher risk assets combined with selling
pressure following the test of resistance put pressure on the Aussie. The daily
chart indicates the formation of a minor closing price reversal top which
should put additional pressure on the Aussie early next week. If sentiment
shifts away from risk next week, then it really isnâ€™t going to matter what the
RBA does. Downside pressure will resume on the Aussie.
After an initial surge to the upside overnight, the GBP USD broke
from its high. Traders were buying in response to the strong showing at the
debate by the Conservative Party. Some traders felt that the emergence of a
leader less than a week before the May 6th election would 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%.For the week, the British Pound closed lower
while changing the trend to down. Expectations are for this market to sell-off
into the election with 1.5078 the next potential downside target.
Another victim of the drop in appetite for higher risk
assets was the Canadian Dollar. Fridayâ€™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 was tested on Friday. This
angle can easily be taken out on the Mondayâ€™s opening. 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.
The USD CHF closed higher for the week after a breakout to a
10-week high. The close back below the former top at 1.0897 was triggered by
the turnaround in the Euro. Swiss National Bank President Phillip Hildebrand
said that Europe must find a quick settlement
to Greek financial problems in order to return stability to the region. He also
has enormously benefited from currency stability over the past decade. Itâ€™s
obvious that a threat to this stability would pose big risks.â€ť
Hildebrandâ€™s comments signal that the SNB remains poised to
continue to intervene by selling Swiss Francs in order to defend its currencyâ€™s
stability and to protect the countryâ€™s export market. This means continue to buy
the USD CHF on Euro weakness.
The USD JPY closed flat for the week but lower on Friday.
After an early attempt to breakout to the upside failed, the Dollar/Yen sold
off sharply as the stock market deteriorated. The weak close in this pair
indicates that further downside pressure is likely with 93.08 the target. Watch
for weakness early next week especially since the U.S. equity markets posted major
weekly closing price reversal tops. Traders are ignoring the weak Japanese
economy and turning their focus on an increase in demand for lower yielding
The NZD USD finished the week sharply higher despite a
profit-taking break from its high on Friday. Although the Reserve Bank of New Zealand
voted to leave interest rates unchanged this week, most traders believe the
central bank is getting ready to begin increasing interest rates sooner than
expected. In addition, it looks as if traders began reversing long Australian
Dollar/short New Zealand
Dollar spread.The interest rate
differential played a role in this week rally also. With the Fed stating that
interest rates would remain low for â€śan extended periodâ€ť and the RBNZ hinting
that rates would rise, traders began to take advantage of the high rates in New Zealand.
This weekâ€™s action indicates that investors believe the RBNZ will begin raising
interest rates before the Fed.
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Mon 18 Dec
10:00 EZ- final HICP Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
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15:30 US- EIA Crude Thu 21 Dec
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POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.
POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity
POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
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