The Dollar traded mixed at the close. The lack of any fresh economic news encouraged investors to seek direction from the equity markets. It seemed the only market moving with any conviction is the British Pound.
The British Pound erased early session losses and opened better in New York following the release of the Bank of England minutes which showed that the Monetary Policy Committee voted 8 -1 to keep interest rates at historically low levels.
Besides voting to keep rates low, the BoE also voted to maintain its asset-purchase program at 200 billion pounds. The MPC discussed both easing and tightening at its latest meeting before voting overwhelmingly to maintain the status quo.
The recent discussion has been about the U.K. inflation. Some believe that it is too high and not likely to fall back under the BoE’s target rate of 2.0%. Based on the conviction of the BoE members at its last meeting, however, it looks as if investors believe what the central bank is saying about the inflation rate easing back toward the target by 2012.
Technically the British Pound found support early this morning on an uptrending Gann angle from the 1.4229 bottom after piercing a key 50% level at 1.5560. Regaining this level has put the market in a strong position to post a daily closing price reversal today. This pattern suggests the possible start of a 2 to 3 day rally back to 1.5746.
The Australian Dollar was under pressure all day on Wednesday. The Aussie weakened after a report measuring the number of jobs available for skilled workers fell 0.3 percent in August. The decline in this wage index is a signal that the economy may be cooling, leading to the selling pressure.
Technically, the Aussie completed a 50% retracement of the recent short-term decline. A failure between .9039 and .9083 could mean a secondary lower top is forming. This pattern could mean the start of increased selling pressure.
The Euro appears to be caught in a technical nightmare. One chart says the recent break will not be completed until the major 50% price level at 1.2605 is tested. Another chart is indicating the break is over and the market is ripe for a rally back to 1.3033. This seems to be creating tension amongst the traders causing a four-day consolidation.
This pattern usually indicates impending volatility. The best way to play this type of pattern is to go the way of the move and watch for a breakout to the upside to test 1.3033 and a breakdown to possibly reach 1.2605.
In the Dollar/Yen, last week’s weekly reversal bottom still remains unconfirmed while the market remains rangebound between 84.73 and 86.37. The pivot price of this range is 85.55. This price is dictating the tone in the market at this time. Like the Euro the Dollar/Yen is in developing into a potentially explosive situation.
Some investors still believe the government is going to intervene, and has been using the lull in the market to help gather the support of the other central banks. Others point out that the market is following the movement of the equities markets this week and ignoring talk of a potential intervention. The clash in the fundamentals is causing a sideways trade. The good thing for volatility traders is the sideways action is compressing the price action which means a big move is coming.
Watch for an acceleration to the downside and a resumption of the downtrend if 84.73 fails to hold. A trade through 86.37 will change the main trend to up and if triggered by an intervention could trigger a sharply higher rally to 89.85.
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