European Central Bank President Jean Claude Trichet fueled a surge in the Euro late this morning by stating that the ECB would maintain its liquidity measures but not increase or add any. Investors liked this news because it indicted that the central bank feels confident in the economy. The Euro rallied on the news after the table was set for a strong short-covering rally.
The inability to break the Euro overnight after a hard sell-off late in the session on Wednesday triggered the start of a short-squeeze this morning. Short-traders scrambled to cover positions as downside momentum dried up after the European Union got its act together earlier this week and announced final plans to rescue its troubled members.
Technically the Euro is still in a downtrend, but a new main bottom has been formed, creating a range between 1.2453 to 1.1876. This has created a retracement zone at 1.2164 to 1.2233. Based on the current upside momentum, this zone is today’s target.
In addition, two main bottoms at 1.2143 and 1.2153 are also targets, forming a huge resistance cluster at 1.2143 to 1.2164. With the main trend down, don’t be surprised if fresh shorts get reapplied in this cluster area. Some bearish traders still believe that the sovereign debt situation will get worse before it gets better and the Euro will eventually trade down to parity with the Dollar.
An easing of tensions in the Euro Zone is also helping to trigger a rally in the British Pound. This market is starting to run to the upside after a successful test of a retracement zone at 1.4499 to 1.4435. The next upside objective is 1.4769. A breakout over this price will change the main trend to up and should ignite a further rally to 1.4947 over the near-term.
The USD CHF is losing ground at the mid-session. The stronger Euro is easing speculation that the Swiss National Bank will continue to intervene to weaken its currency. Today’s action indicates that a test of 1.1309 is likely over the short-run.
Stronger demand for higher risk assets is driving the Canadian Dollar higher. The strong rally in crude oil and U.S. equities helped to push the USD CAD through the last main bottom at 1.0333, turning the main trend to down on the daily chart.
Talk that the global recovery was back on track helped drive the AUD USD to within striking distance of the last main top at .8550. A move through this price will turn the main trend to up for the first time since early May. Upside momentum is building which should drive this market into the .8727 to .8883 retracement zone over the near-term.
The NZD USD continued to mount a strong comeback rally following the formation of the .6572 closing price reversal bottom earlier in the week. The rally has already exceeded expectations, which is a sign of higher markets to come. The chart pattern suggests that a double-bottom is forming at .6560 to .6572 which projects a rally to .7238. This move may take some time to form. In the meantime, traders should watch for a change in trend to up on the daily chart following a trade through .6899. Don’t look for too much upside movement following the change in trend since .6942 to .7033 is a major retracement zone.
Fundamentally, signs that the global recovery is back on track along with the 25 basis point hike by the Reserve Bank of New Zealand gave shorts a reason to cover positions and fresh longs to re-emerge after several weeks on the sidelines. 
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