The Euro continued to rally on Tuesday as short-traders covered positions on the assumption that the Euro Zone economy may be stabilizing and the risk of a collapse in the currency is abating.
Investor confidence in the global economic recovery continued to improve during today’s trading session leading to an increase in risk-based trading. The demand for greater risk encouraged traders to reverse so-called flight to safety positions in the U.S. Dollar.
Technical factors are also driving the Euro higher after the formation of a closing price reversal bottom last week. Now that this reversal has been confirmed by this week’s follow-through rally, traders are becoming confident that the current upside momentum may be strong enough to take out the last main top at 1.2453. This action will turn the main trend up on the daily chart. The weekly chart indicates that this move may last 2 to 3 weeks with 1.2784 the minimum upside target.
Traders should not assume that the market will rally without a correction. The charts indicate that the bottom at 1.1876 has not been tested, meaning that a 50% or more correction to set up a secondary higher bottom is still likely.
The GBP USD was able to recover from an early morning set-back triggered by not-so-friendly U.K. inflation data. The easing of tensions in the Euro Zone and greater demand for risky assets was the catalyst behind Tuesday’s turnabout.
The main trend turned up in the British Pound on Monday but the rally has been labored because of 50% retracement resistance at 1.4810. This market slowly probed this price level late Tuesday but was unable to trigger stops or attract fresh buyers. Nonetheless, this price level remains an important area to overcome. A sustained trade over 1.4810 tomorrow will set up the Sterling for an acceleration to the next key retracement level at 1.4947.
Greater demand for higher yielding assets also helped drive the Australian and New Zealand Dollars higher. The main trend is up on the AUD USD daily chart. Technically, there is room to the upside with .8727 the first target, followed by .8883. The NZD USD is currently the leader amongst the higher yielding currencies. The main trend turned up last week in the Kiwi on the move through .6899. Currently this market is trying to build strength at a 50% price level at .6942. The next upside target is .7033. Look for the rally in the Pacific Rim currencies to continue as long as traders remain convinced that the Euro Zone economy is stabilizing and the global economic recovery is back on track.
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