The EUR USD rallied sharply higher on Wednesday after the European Central Bank reported that demand for three-month loans by member banks was weaker than expected. This news came as relief for traders who were looking for European banks to be a little more active at the lending window given the bleak outlook for the Euro Zone economy. The news tempered concerns that the European banking sector was weakening and would need to continue to borrow from the ECB to shore up finances.
Technically, the Euro found support at a key 50% level at 1.2171. The rally from this level gives bullish traders a ray of hope that the market will form a secondary higher bottom to help drive it through the most recent high at 1.2367. Bearish traders point out that the short traders still control the Euro based on the recent Commitment of Traders Report. Some feel that lower prices are coming and that today’s rally was just a technical glitch in the down trend. The chart indicates that a failure to hold 1.2171 should trigger a fast move to 1.2102.
Gains in the Euro may have been limited on rumors that Moody’s rating service was getting ready to downgrade Spain’s sovereign debt. Some believe that this may already be priced into the market because Fitch and the S&P Corp. had already downgraded Spanish bonds weeks earlier.
The U.S. Dollar was mixed against most major currencies on Wednesday. The weak equity markets helped drive up demand for safety while pressuring the commodity-linked currencies. The AUD USD broke through 50% support at .8469. Downside momentum indicates that a test of .8378 is likely over the near-term. The NZD USD completed its 50% retracement to .6865, but the inability to trigger a technical bounce at this level indicates that a break to .6896 is likely. The USD CHF rose sharply higher after an early attempt to break it failed. Upside momentum indicates a move to the early June main top at 1.0678 should be expected over the short-term.
Weak crude oil and equity markets weighed heavily on the Canadian Dollar. Concerns are being raised about Canada’s ability to grow its economy if crude oil continues to weaken. Traders are now beginning to price in the possibility that the Bank of Canada will leave interest rates unchanged at its next meeting.
The big surprise of the day was the June ADP Employment Report. Early guesses were pegged at the creation of anywhere from 23,000 to 100,000 jobs or a consensus of 60,000. The actual figure of 13,000 jobs created helped the Dollar to strengthen against all Forex markets except the Japanese Yen and Euro.
The lack of interest in the bearish ADP Report is a sign that traders are more focused on this Friday’s U.S. Non-Farm Payrolls Report. Economists are predicting a loss of about 130,000 jobs in June. This figure includes about 250,000 temporary jobs.
Based on the weak close in the U.S. equity markets, it appears that the bears are in control. This also means that the Dollar is likely to be underpinned by demand for less risky assets.
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