Aussie Weekly Close Suggests Higher Markets to Follow
The Australian Dollar finished the week sharply higher. The
Aussie got a boost early in the week when the Reserve Bank of Australia announced that interest rates would
remain unchanged this month but that the policymakers will not hesitate to
raise rates despite concerns over growth prospects in China.
The strong close in the Aussie has put the market in a
position to rally higher next week. The first upside target will be the old
main top at .8858. A move through this level will turn the main trend to up on
the daily chart and should trigger an acceleration to the upside.
The USD CAD was a big loser today. The Canadian Dollar
strengthened earlier in the session when the government released a better than
expected jobs report for June. This news is a strong sign that the Bank of
Canada will raise interest rates a second time in late July. Since the
U.S./Canadian has been range bound for several months, traders see this market
as one with great opportunity because of the possibility of a breakout move.
The U.S. Dollar traded mixed against most major currencies
with the exception of the Canadian Dollar and New Zealand Dollar. Traders
seemed to shy away from riskier currencies throughout the day despite a stronger
equity market. Some of this weakness was attributed to end of the week
profit-taking, but many traders believe confusion over whether to follow the
economic reports or the bank stress test rumors is encouraging investors to
Early weakness in global equity markets helped to pressure
the Euro and the commodity-linked currencies which they never recovered from
despite a turnaround in U.S.
equity markets. Risk sentiment seems to have shifted overnight with investors
becoming more risk averse. Profit-taking and position squaring ahead of the
start of the U.S.
earnings season appeared to be the catalyst behind this morningâ€™s early
The Euro is trading inside of major retracement zone at
1.2609 to 1.2782. The current chart pattern suggests a developing daily closing
price reversal top. This could lead to the start of a 2 to 3 day break. At this
time 1.2609 is holding as support. A failure to hold this level could trigger
the start of an acceleration to the downside. Should a reversal top form, look
for a short-term correction to 1.2400.
The movement in the GBP USD signaled a change in trend to
down on the daily chart following a break through the main bottom at 1.5080.
The current chart pattern suggests the start of a correction to 1.4734 to
1.4615 is possible.
Traders have been pressuring the British Pound since early
Thursday when it a drop in home prices was announced. This was an indication
that the economy is still weak. Also on Thursday the Bank of England announced
that interest rates would remain unchanged at historically low levels.
Investors may have decided to pare positions after a strong rally in the Sterling because of
uncertainty about how the new government and the Bank of England will work
The new government is pushing financial austerity measures
designed to cut costs and possibly raise taxes while the central bank is trying
to keep the recovery going. Holding interest rates low may encourage expansion
but may also lead to higher inflation. The government and the central bank have
to find a way to coordinate their efforts so that the countryâ€™s finances
stabilize while maintaining positive growth. This is the challenge that could
be causing worries amongst traders.
With the start of earningâ€™s season next week, there is the
strong possibility that U.S.
equity markets will rally. This should underpin the USD JPY. Wednesdayâ€™s
reversal to the upside is also a strong sign that this currency pair is reading
for a sharp short-covering rally.
Technically the Dollar/Yen chart suggests there is room to
the upside with 90.97 a possibility. The strength in a U.S. stock market rally will
determine how high this currency pair moves.
A shift toward higher risk assets is likely to keep down
side pressure on the Japanese Yen as investors renew their interest in the
This week showed that appetite for risk is back. This means
that a rally next week in the equity markets is likely to continue to underpin
the Euro and the commodity-linked currencies while pressuring the Japanese Yen.
Next week is also the start of earnings season which could mean an increase in
volatility due to rapid shifts in the U.S. stock markets.
Although the European bank stress test results are not due
to be released until July 23rd, Euro traders are still unconcerned
about what these results will yield. A comment by European Central Bank
President Trichet on Thursday about banks having to raise capital could weigh
on traders minds, thereby slowing down the pace of the gains in the Euro.
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