The Dollar/Yen remains balanced at the mid-point of the 82.88 to 85.93 range at 84.40. In addition, a Gann angle at 84.38 is providing additional support, making 84.40 to 84.38 an important support cluster. Clearly this area is controlling the short-term direction of the market at this time.
The choppy trading conditions in the U.S. equity markets did not help matters on Thursday morning. Prior to the U.S. opening, equities were under pressure which was helping to push the USD JPY lower. Traders were abandoning risky assets and seeking shelter in the lower yielding Japanese Yen. The sharp rally in the stock market encouraged investors to scrap this strategy, triggering a short-covering rally.
The break back to 50% of the “Intervention Rally” could be a buying opportunity for bullish Dollar/Yen traders, but it is going to take another round of intervention to get the market moving higher. Since Japanese officials intervened during the opening of the Asian markets, traders will be watching on Thursday night to see if they do it again.
If there is no intervention, then the bears will continue to cautiously push the Dollar/Yen lower with a Fibonacci retracement level at 84.04 the next likely downside target.
A failure to intervene will make it easier for bullish Yen traders to take back control of this market especially if equity markets sell-off and traders once again look for safety in the lower-yielding Japanese Yen.
The EUR USD had an inside day but finished lower. Technically the Euro fell to the bearish side of a steep uptrending Gann angle at 1.3444, perhaps signaling the end of this rally or at the least the end to the bullish pace which has driven this market over a short period of time to its highest level since April.
Falling to the bear side of an angle doesn’t mean the trend is changing to down, but indicates that the speed at which this market is rallying may slow down. The distance between the steep angle and the next angle is fairly large, indicating that the Euro has room to break to the downside.
A bearish Euro Zone PMI report triggered Thursday’s weakness. Cautious traders read this as a clue that perhaps the European economy is not going to be immune to the same economic downturn affecting the U.S. economy. A slowdown in economic activity will not be good, especially since many European nations have begun to administer strict austerity measures.
Euro investors were also spooked by a news report which said that Ireland’s finance minister hinted that holders of Anglo Irish Bank’s subordinated debt may not get all their money back. Traders are remembering what happened in Greece and are not waiting for events to unfold before paring long positions or liquidating positions completely.
Although most of the Euro’s gain this week can be attributed to the Fed’s assessment of the U.S. economy and its hinting at additional quantitative easing, Euro bulls definitely received a wake-up call on Thursday, which may cause them to pay more attention to the Euro Zone economy as well as the lingering sovereign debt issues.
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