Greenback Gains on Low Volume; Investors Shedding Risk
The U.S. Dollar finished higher against most currencies on
Monday, driven by a weak outlook for the global economic recovery.
The EUR USD fell further on Monday as sentiment shifted away
from risky assets. Despite the light volume and low volatility, sellers
dominated the market all day. The weak close has this market in a position to
test a major 50% price level at 1.2605. A failure to hold this level means a
break to 1.2433 is likely.
Without any major economic reports until late in the session
and several large trading groups out of the markets until after Labor Day,
volatility may be down throughout the week. On Thursday, Bernanke gives a
speech at the central bankers gathering at Jackson Hole, WY.
This speech has the potential to move the markets depending on what he says and
what he doesnâ€™t say.
After an early attempt to breakout to the upside, the GBP
USD ran into sellers who quickly pushed this pair to the bearside of a pair of
Gann angles. Fundamentally, traders are concerned the new austerity measures
will slow down the recovery.
At the close the British Pound is trading on the bear side
of an uptrending Gann angle at 1.5569 and on the bear side of a downtrending
Gann angle at 1.5557. This price cluster was pierced early in the session, but
the move did not attract any follow-through buying.
Although the Gann angles are indicating developing weakness,
it looks as if an acceleration to the downside is likely to start following a
close under a minor .618 level at 1.5457. Once this area is penetrated, the
charts indicate the market can go into a free fall because the next major
downside level is 1.5113.
The USD JPY remains inside the main range of 84.73 to 86.37,
but below the mid-point of this range at 85.55, indicating impending weakness.
The fact that weâ€™ve sat inside this range for six trading sessions also means
to expect volatility. The only problem is no one is sure which way the market
will move although traders appear to be leaning toward the short side.
Investors have been factoring in the possibility of an
intervention by the Bank of Japan, but so far no such decision has been
forthcoming. This is creating the uncertainty in the market. This morning the
Japanese government said it would work with the BoJ, but this came as no
surprise to veteran investors who truly believe the government has had its hand
in just about every major policy decision. Nevertheless, investors lighten up
bets calling for an intervention as flight to safety buying of the Yen took
over once again.
The Australian Dollar gapped lower overnight due to
political uncertainty stemming from unclear election results over the week-end
and the possibility of a hung parliament. Weak shorts most likely lightened up
their positions on the news. The lack of follow-through to the downside
triggered a short-covering rally into the mid-session, but this rally also
failed before the market traded lower into the close.
Traders are a little confused as to which side of the market
to take. Technically, this market could rally back to .9030 where it will most
likely be sold. The charts also indicate there is plenty of room to the
downside, with a 50% level at .8644, a likely target.
In my opinion the traders are waiting to see if a compromise
can be reached before taking a side. This is how the U.K. elections were settled, which
led to almost immediate stability in the government, triggering a long-term
rally. Traders are hoping a similar solution will be reached in Australia.
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Mon 18 Dec
10:00 EZ- final HICP Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
17:00 US- early Closes Mon 25 Dec
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POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.
POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity
POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
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