The U.S. Dollar traded sharply lower on Thursday, giving the
first indication in weeks that the event driven rally may be coming to an end.
Pressure was on the Dollar all day led by the strong turnaround in the Euro.
Additional pressure came from increased interest in stocks and commodities.
Technically, overbought conditions also contributed to the Dollarâ€™s weakness.
The current chart pattern suggests the formation of a possible double-top with
a confirmation set to take place when this index takes out the last main bottom
Easing tensions in the Euro Zone helped to boost demand for
higher risk assets on Thursday. Since last week, the Euro has been trying to
form a bottom but has been met by both fundamental and technical obstacles in
the process. On Wednesday, rumors that China was re-evaluating its
Euro-denominated bond portfolio sent the single-currency lower along with crude
oil and stock indices. Overnight trading was another story however.
Wednesday night Chinaâ€™s foreign exchange reserves
manager denied a news report that it was considering the sale of some of its
holdings of Euro-denominated bonds.This
helped the Euro rebound, sending the Dollar lower against most currency-linked
commodities. With the Dollar trading lower, demand for higher risk assets
Stronger demand for higher yielding assets also helped to
drive up the commodity-linked Australian, New Zealand and Canadian Dollars
while pressuring the lower-yielding Japanese Yen.
The EUR USD was firm all day. This morningâ€™s rally drove the
Euro into a Fibonacci retracement level at 1.2345. Additional resistance was
coming in at a downtrending angle at 1.2371. Regaining both of these prices
could trigger a further rally to the 50% price at 1.2407.
Regaining the retracement zone is the first step in the
bottoming process for the Euro. The next step will be crossing a mains swing
top. At this time the main trend remains down until the last swing top at
1.2671 is violated.
The GBP USD moved higher and away from the support base it
has been building over the last five days. Based on the short-term range of
1.5391 to 1.4229, traders should look for a near-term retracement to 1.4810 to
1.4947. A more optimistic view of the financial situation in the Euro Zone and
acceptance of some of the proposed austerity measures by the newly formed U.K.
government are acting as catalysts for the current developing strength.
The USD CHF traded weaker after confirming its closing price
reversal top at 1.1695. Downside momentum is building which could drive this
market into the retracement zone at 1.1309 to 1.1218. A easing of pressure on
the Euro is helping to trigger the rally in the Swiss Franc. Traders feel that
a rally in the Euro will allow the Swiss National Bank to ease up on its
constant intervention in the market.
Increased demand for higher yielding assets helped to boost
the USD JPY. Trading has been quiet lately indicating impending volatility.
Watch for a surge in U.S.
equities to trigger a quick rally back to 91.61 over the near-term. As investor
appetite for risk grows they begin to favor a strategy which involves borrowing
in Japanese Yen to buy other higher risk assets such as U.S. stocks. In order to do this,
they must sell the Yen and buy the Dollar.
Strong crude oil helped to pressure the USD CAD. Once again
this market rejected the former top at 1.0738. Downside momentum drove this
market to a 50% level at 1.0481. If momentum continues to grow and crude oil
and stocks continue to rise, then look for further weakness to 1.0394 over the
The AUD USD soared throughout the day on increased investor
appetite for risk. Stronger global equity markets were the catalysts behind
Thursdayâ€™s. The daily chart indicates that there is plenty of room to the
upside with a possible retracement to .8727 to .8883 likely over the
short-run.Resistance may come in
tomorrow at a downtrending Gann angle at .8707.
The NZD USD confirmed its closing price reversal bottom at
.6560 from May 25th. The daily chart indicates that this market could retrace
back to .6942 over the near-term.
Barring any fresh bearish news out of the Euro Zone or any
threats from China
to stop investing in Euro bonds, it looks as if the much awaited profit-taking
break in the U.S. Dollar has begun. Although the main trend is up, it isnâ€™t
going to take much to weaken the Dollar. Extremely oversold conditions in
foreign currencies and nervous short traders could turn the heat up on the
Dollar rather quickly.
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