The Australian Dollar rebounded on Tuesday following a
three-day setback boosted by stronger U.S. equity markets and increased
demand for currency-linked commodities. Speculation mounted that the central
bank would raise interest rates before the end of the year following news that
the Asian Development Bank increased its growth forecast for China. This
encouraged investors to buy the Aussie in anticipation of improved economic
conditions because of increased demand for Australian raw materials.
Technically, the AUD USD maintained its uptrend despite the
short-term correction to .8632. The strong move on Tuesday puts the Aussie in a
position to take out the swing top at .8870 and the .618 retracement level at
.8883. A penetration of these two levels is likely to trigger an acceleration
to the upside.
The strong rise in the Australian Dollar along with talk of
another interest rate hike by the Reserve Bank of Australia triggered a strong rally
in the New Zealand Dollar. With the Aussieâ€™s likely to hike rates before the
end of the year and the Bank of Canada setting its benchmark rate 25 basis
points higher this morning, Kiwi investors gained confidence that the Reserve
Bank of New Zealand
would be next in line to adjust interest rates higher.
Technically, the NZD USD rebounded after testing the 50%
level of the .6794 to .7303 range. The main trend is up, but the market may run
into minor resistance at .7166 to .7198.
After trading in a tight range most of the morning, pressure
from rising equity prices and commodities finally ignited a sell-off in the USD
CAD. Early this morning, the Bank of Canada hiked its benchmark interest rate
by 25 basis points. This increase was in line with expectations, but the dovish
tone of the policymakerâ€™s statement helped hold the Dollar/CAD inside a tight
range most of the morning. Once U.S.
equity markets rebounded from a weaker opening, traders aggressively bought the
Technically, the USD CAD is still locked inside of two
ranges. The broad range is .9929 to 1.0853 with a mid-point of 1.0391. The
narrower range is 1.0853 to 1.0137 with a mid-point of 1.0495. Currently this
pair is trading between the mid-points of each range.
A rumor of a possible intervention by the Bank of Japan
helped underpin the USD JPY on Tuesday. A turnaround in the stock market
pressured demand for lower yielding currencies, thereby adding to the
bullishness of the Dollar/Yen. Although an intervention from the BoJ is
possible, traders are taking a precautionary approach to the long side due to
the fact that the strength in the Yen has been caused by a weakening U.S. economy
and not excessive speculation. The BoJ is worried that the strengthening Yen
will lead to decreased demand for Japanese exports. Investors are likely to
remain short until the swing top at 89.15 is violated. A breakout above this
point will turn the main trend to up, setting up a possible rally to 90.62.
The British Pound rebounded against the Euro after Hungaryâ€™s smaller-than-expected
debt auction renewed sovereign debt concerns in the Euro Zone.
Early in the session the British Pound was under pressure
due to concerns about the economic recovery triggered by a weaker-than-expected
budget deficit and lower mortgage approvals.
Technically, the GBP USD survived a two-day break while
keeping the main up trend in tact. Tuesdayâ€™s strong upside momentum indicates
the market may have enough power to test the last swing top at 1.5471. A new
main bottom at 1.5152 may also form, adding to the Poundâ€™s growing series of
The biggest concern facing the Pound at this time is whether
economy can strengthen enough to trigger a rate hike by the Bank of England.
Traders are extremely worried that the economy will weaken further because of
the newly approved austerity measures.This would make the U.K.â€™s
debt rating vulnerable to a downgrade by the ratings agencies.
The EUR USD traded lower, pressured by sovereign debt
concerns in Europe following poor demand for Hungaryâ€™s debt. Profit-taking ahead
of Fridayâ€™s release of the European bank stress tests results added to the
weakness. Traders are nervous about what the report will reveal. Some feel the
test wasnâ€™t stringent enough; others feel that it will show several banks need
to raise more capital.
After testing a Fibonacci retracement level at 1.2998 and
trading all the way to 1.3028, the Euro posted a daily closing price reversal
top on Tuesday. This is the second such reversal in two days signaling increasing
selling pressure. A follow-through to the downside is needed to confirm the
reversal. Watch for weakness to develop if the 50% level at 1.2783 fails to
Over the near-term, stronger demand for higher risk assets
is likely to continue to underpin the commodity-linked currencies.
Profit-taking is expected to continue to pressure the Euro as traders await
Fridayâ€™s European bank stress test results.
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