Strong Intel Earnings Drives Euro Higher into Close
The U.S. Dollar is plunging into the close driven sharply
lower this late in the session by the news that semiconductor chip maker Intel
blew out quarterly revenue and profit guesses in its second-quarter results.
Investor sentiment has turned extremely positive following
the release of the Intel data, driving up demand for higher risk currencies.
This sharp increase in appetite for risk is likely to set the tone for a
further drop in the Dollar overnight and renewed selling pressure when the
stock markets open higher in New York
Tuesdayâ€™s rally was initially led by the British Pound and
the commodity-linked currencies. A turnaround early in the trading session also
underpinned the Euro after a weaker start.
Traders drove up U.S. equity markets throughout the
day in anticipation of Tuesdayâ€™s quarterly earnings report from Intel. Equity
markets opened higher this morning bolstered by good earnings news from Alcoa
and CSX Corp on Monday.
The Euro mounted a strong turnaround after a Moodyâ€™s
downgrade Portuguese debt drove it lower overnight. The initial reaction to the
news was to the downside, but investors decided to ignore this news and focus
earnings instead. The fast about face in the Euro took it through the recent
top at 1.2722 following a two-day set-back, leading to a resumption of the
uptrend and putting the market back on pace to challenge the major retracement
zone at 1.2784 to 1.2998.
A report showing U.K. inflation had risen prompted
the start of a short-covering rally in the British Pound overnight which
carried over into the day session. Traders now believe that inflation could
become the key issue which derails the U.K. recovery unless the central
bank acts upon it. Todayâ€™s initial rally indicates that investors may be pricing
in a possible rate hike by the Bank of England.
After finding support twice this week on an uptrending Gann
angle, the Sterling
closed in a position to challenge the recent top at 1.5240. A drive through
this level will turn the main trend back to up on the daily chart and set up
the market for a further rally to the late April top at 1.5523.
After surprisingly trading lower most of the session, the
USD JPY mounted a strong recovery late in the session driven by soaring U.S. equity
markets to post a slight gain for the day. With stock markets expected to
continue to rally on Wednesday, look for the Dollar/Yen to continue to rally as
stock players renew their interest in higher yielding assets and the carry
Strong rallies in equities, crude oil and gold helped push
the USD CAD lower on Tuesday. Although the Dollar/CAD is trading inside of a
broad range, pressure is on this currency pair to drive the market into the
lower end of this range.
The AUD USD rallied on Tuesday driven higher by increased
appetite for risk. Technically the strong close has put this currency in a
position to challenge the .618 retracement level at .8883. A drive through this
level should trigger stops and an acceleration to the upside. Strong support is
being provided by an uptrending Gann angle currently at .8727.
Since the beginning of the month, following a string of
worse than expected U.S.
economic news, Forex investors have been selling the Dollar. Now, expectations
of robust earnings during the second quarter have shifted investor sentiment,
pressuring the Dollar even further. With 10-Year Treasuries hovering near
3.00%, investors are hungry for better returns and are flocking to the stock
market. Although economic reports have been poor, investor sentiment can be a
strong market driver.
After bearish fundamental events in Europe throughout the
Spring and concerns about Chinaâ€™s
growth, foreign investors see great opportunity in the U.S. markets without the high level of risk seen
in Asia and Europe. This could help trigger a
month long rally in U.S.
equities while sending the Dollar spiraling lower until at least the first week
Another key sign in the market today was the turnaround in
the Euro following the downgrade of Portugalâ€™s debt. Although this
event may have been factored into the market, todayâ€™s turnaround served as a
sign that market participants are no longer easily rattled by bearish news. The
next key event, however, will be the release of the European bank stress tests.
Downside momentum may slow in the Dollar a few days leading up to the release
of this data, but it seems like it is going to take a blockbuster surprise to
derail the Euro at this time.
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