After hovering on both sides of an uptrending Gann angle at .9570 on Wednesday, the Aussie Dollar finally succumbed to selling pressure, triggering a break from its high and putting it in a position to form a daily closing price reversal top.
A late session comeback, however, helped the Aussie avoid forming the bearish topping pattern. The intraday action does suggest, however, that the selling may be greater than the buying at its current price level.
Weakness in U.S. equity markets was to blame for Wednesday’s break in the AUD USD. Once it became clear that the stock market did not have enough buying power to regain Tuesday’s high, demand for higher risk assets fell, triggering a profit-taking break in the Australian Dollar.
Although the Australian economy is much stronger than the U.S. economy at this time, and its central bank has been raising interest rates while the Fed is likely to begin another round of stimulus, investors are concerned that the faltering U.S. economy may derail the entire global recovery. This concern is encouraging bullish Aussie Dollar traders to take a little off the top while traders reassess their risk parameters.
A strong overnight rally triggered a sharp move to the upside, putting the GBP USD in position to challenge a key resistance cluster at 1.5728 to 1.5736. The Sterling backed-off early in the session at 1.5714 before settling into a range.
Early Wednesday morning the Bank of England minutes stated that the central bank members were concerned about a slow-down in the economy and were open to fresh stimulus measures. This news may have helped limit gains in the British Pound today.
The USD JPY hit a key 50% price at 80.40 as forecast, triggering some light profit-taking. Although traders anticipate another round of intervention, there has been no notable central bank activity at this time. This could mean that aggressive traders will continue to push the Dollar/Yen lower into the next retracement level at 80.04.
The 50% correction of the “Intervention Rally” in less than a week proves that the Bank of Japan and Japanese officials will have to work harder to weaken the Japanese Yen. I warned before the intervention that they seldom work without the cooperation of other central banks. The Fed’s strong hint at further stimulus was a sign that it was not on the same page as the BoJ since its poor assessment of the U.S. economy was bad for the Dollar.
Whether the Fed is deliberately weakening the U.S. Dollar can be debated, the bottom-line is, Japan can cry all it wants about the strong Yen weakening its economy, but the Fed is not concerned because the U.S. economy has problems of its own.
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