Saturday September 11, 2010 - 04:30:37 GMT
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Aussie and Japanese Yen to be Main Focus Next Week
The Australian Dollar and the Japanese Yen are likely to be
the main focus next week as both are expected to be big movers if the global
equity markets expand to the upside as expected.
Money continued to flow out of T-Bonds and Gold which may be
an indication that investors are gearing up for a stock market rally next week.
Investors should be focusing on the movement of cash at this
time. The money leaving the Treasury and Gold markets has to be put to work at
some time and the stock market seems to be the most likely place to invest. The
Australian Dollar could see more upside as traders are likely to chase higher
yielding assets. The Japanese Yen could feel pressure from a renewal of the
carry trade if equity markets begin to soar.
The AUD USD traded higher on Friday but under yesterdayâ€™s
high at .9276 in reaction to Chinese trade data released overnight that showed Chinaâ€™s
trade surplus narrowed as imports accelerated in August.
We already knew that China
has surpassed Japan and the U.S. to become Australiaâ€™s trading partner, but
this report could be laying the foundation for an even sharper rise in the
Aussie if the global economy begins to heat up. At this time, the Australian
Dollar seems to be well positioned to gain from greater demand for higher risk
Technically, the AUD USD is in an uptrend after crossing the
last swing top at .9221 on Thursday. This price level is likely to become new
support since often old tops become new bottoms. In addition, an uptrending
Gann angle at .9274 on Monday is helping to guide this currency pair higher.
The pace of the current rally may begin to slow down as this
market approaches a series of tops at .9323, .9337, .9364 and .9387. Once this
area is cleared, we could begin to see an acceleration to the upside. The big
number to overtake will be the November 2009 top at .9405. If this price gets
taken out, then look for renewed talk of the Australian Dollar reaching par
with the U.S. Dollar.
The USD JPY closed up on Friday, but was still lower for the
week. Todayâ€™s action confirmed Wednesdayâ€™s closing price reversal bottom, but
all this indicates is the possibility of a short-covering rally back to 84.62
to 84.93. What I really wanted to see was a close over last weekâ€™s settlement
This morning, the Dollar/Yen regained 84.28 for a
short-period of time, trading up to 84.37 before buying dried up. This
indicates that the rally was most likely short-covering rather than fresh longs
because of the way the market drifted lower throughout the rest of the day and
into the close.
Stronger demand for higher risk assets as well as the threat
of an intervention by the Japanese government and the Bank of Japan was the
catalyst behind this weekâ€™s bottoming action.
The daily reversal bottom pattern usually lasts 2 to 3 days
and ends inside of a short-term retracement zone, but they have been known to
start even larger rallies. This is possible with the current set-up. Money has
been shifting out of Gold and T-Bonds and big investors may be gearing up to
invest these funds in the equity markets.
If this occurs, then look for a revival in the carry trade.
This occurs when investors, sensing the start of an increase in appetite for
risk, borrow in Japan,
convert the Yen to Dollars and buy riskier assets.
The set-up is there, the market just needs some muscle
behind it to follow-through. This may occur next week when many large traders
and institutions are expected to return to the trading arena after the Jewish
holiday and the extended end-of-summer vacations.
Donâ€™t be surprised by an intervention in the Japanese Yen
over the week-end. This could be the catalyst which drives up demand for risky
assets next week.
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