The EUR USD is trading weaker overnight after a slump in Greece bond
sales helped escalate worries about European sovereign debt issues.
The Euro finished higher on Wednesday after reversing
earlier weakness following a weak assessment of the U.S. economy by the Federal Open
Market Committee. Based on the overnight action, it appears that this was
short-covering rather than new buying.
Federal Reserve officials downgraded their outlook for the
economy, saying that the recovery was â€śproceedingâ€ť, not strengthening as they
had said in their previous FOMC policy statement in April. The change in the
statement indicates that there was less then favorable data reported since the
committee last met.
In addition to the change in the view of the economy, the
Fed left the target federal funds rate at the current range of zero to 0.25%
and reiterated that interest rates will remain low for an extended period.
Policymakers put some blame on the slowdown in the economy on the European debt
The late session break in the Dollar on Wednesday against
the Euro reversed earlier bullishness. At the mid-session, the Greenback was
trading mixed against most currencies. Trading was light, but the Dollar did
get a boost following a plunge in the U.S. housing market. Gains probably
would have been greater if volume was at average levels.
Early during the session the Euro broke after a report
showing a drop in new U.S.
home sales weighed heavily on higher risk assets. Traders looked for safety in
the Dollar as the report indicated a still weak U.S. economy and the possibility of
a double-dip recession in the housing market.
At the mid-session, the Euro was nearing a key retracement
zone at 1.2174 to 1.2102 but never quite reached this level. The turnaround in
the Euro suggests that a secondary higher bottom may be forming which indicates
buyers may be trying to wrestle the trend away from the sellers.
Although a break into the retracement zone is still
possible, upside momentum indicates that the market may make a run at the last
swing top at 1.2467. This breakout move will set up a further rally into a
major downtrending Gann angle formation at 1.2609.
Overnight action suggests that the Euro may succumb to both
fundamental and technical pressure which should help it resume its move into
the retracement zone at 1.2171 to 1.2102. Risk sentiment seems to be shifting
which means investors will continue to shed risky assets while seeking shelter
in the safer U.S. Dollar.
A drop in demand for higher risk assets is pressuring the
commodity-linked currencies this morning. Downside pressure is clearly on the
Australian, New Zealand
and Canadian Dollars. A weakening global economy should keep the pressure on
demand for goods and services from these major suppliers of raw materials.
The three day break in the AUD USD creates a range between
.8081 to .8868. Should downside momentum continue, traders should watch for a
correction into the retracement zone at .8469 to .8378.
A short-term range has also been created in the NZD USD at
.6572 to .7159. This may be setting up a possible retracement to .6865 to
.6796. This chart looks vulnerable to the downside but needs a catalyst to
trigger the down move. The slowdown in the global economy could be the trigger
for this correction.
Following a closing price reversal bottom on Monday at
1.0137, the USD CAD has rallied back into a retracement zone at 1.0394 to
1.0481. The main trend is down so sellers may re-emerge inside of this zone,
setting up a secondary lower top. The marketâ€™s reaction inside this area will
determine the direction of the market as well as demand for risky assets.
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