The lack of major economic reports encouraged Forex investors to take a look at the technical factors and a few of the news stories on Monday.
Last week the EUR USD, GBP USD, USD CHF, NZD USD, USD CAD and AUD USD all posted weekly closing price reversals. In the cases of the Euro, Pound, Australian and New Zealand Dollar, the chart pattern was a reversal top. The Canadian Dollar and Swiss Franc produced closing price reversal bottoms.
For the most part, the strength in the U.S. Dollar last week and most of Monday was related to investor perceptions that the U.S. economy was going to be the first economy to work out of the recession. Investors also kept upside pressure on the Dollar as rumors swirled that the Federal Reserve was contemplating raising its benchmark interest rate by the end of this year.
The Fed is expected to keep silent on this matter until at least June 24th when it convenes at its next FOMC meeting. In this meeting it may offer suggestions as to how it plans to exit this current round of easing.
The Euro felt early pressure from a credit rating downgrade of Ireland. This could be the tip of the iceberg as more downgrades could come later this month for other countries in the European Union. Exposure to toxic debt or other issues regarding Central and Eastern European banks may also contribute to the weakness.
A growing political crisis in the U.K. contributed to weakness in the Pound. In Japan, news that the current-account surplus was below analyst estimates triggered weakness in the Yen. The Canadian Dollar traded nearly flat after stock and crude oil rallied near the close. The Australian and New Zealand Dollars felt pressure as strength in the Dollar led traders to take protection in higher risk assets.
Technically, the EUR USD is still in a downtrend, but poised to continue lower as the initial retracement target of the 1.2884 to 1.4337 range indicates that this market may drop to 1.311.
The GBP USD is showing signs of building selling pressure. Based on the short-term range of 1.6662 to 1.3653, traders should look for a possible test of 1.5247 to 1.5048.
The USD JPY ran out of buyers near a resistance zone at .9854 to .9764. This forecast is based on the trading activity inside of the retracement zone at .9854 to .9764.
The main range of 1.1741 to 1.0590 creates a retracement zone of 1.1166 to 1.1301 for the USD CHF. The market is eventually expected to reach this zone; the rally could be labored as a downtrending Gann Angle is in the way at 1.1021. This price combined with another 50% price at 1.0973 creates a key price cluster at 1.0973 to 1.1021.
Last week’s closing price reversal bottom in the USD CAD was confirmed by the follow-through rally on Monday. The chart pattern suggests that the rally should continue to at least 1.1923 to 1.2192.
Look for the Australian Dollar to feel downside pressure to .7363. The NZD USD could eventually reach .6038 if the downside momentum continues.
Traders should note that the reversals in the Forex markets do not represent a change in trend, but rather signs of profit-taking. Until these pairs cross swing bottoms or tops should anyone consider the trend has turned.
In addition, although there was a confirming move on Monday, these markets do not move in straight lines in one direction. Therefore, traders should not get too excited selling weakness or buying strength until the trend actually turns. Most of the time, these pairs usually test the old top or bottom of the reversals. If the pressure comes in after a test of the tops or bottoms then start to watch for signs that a change in trend may be taking place.
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