A late session plunge in U.S. equity markets helped the U.S. Dollar surge into the close as traders sought shelter in the safe haven greenback and sold off higher risk assets and higher yielding currencies.
The U.S. Dollar was trading mixed against most major currencies after trading sharply higher during a volatile overnight session. The main concerns for investors today have been the thought that Friday’s weak U.S. employment report was a sign the economy is still mired in slow growth and the newly announced debt problems in Hungary.
The Euro finished lower after a mostly sideways trade in New York. The overnight follow-through to the downside following Friday’s sharp sell-off put this market in an oversold position leading to a conflict between the fundamental traders who believe that lower prices are coming and the technical traders who feel the market needs to retrace over the short-run to set up fresh selling.
Technically, the Euro is in a down trend. The chart pattern suggests that the two old bottoms at 1.2143 to 1.2153 could become a wall of resistance. Watch for support to continue to erode down to 1.1623.
The GBP USD traded slightly better after earlier weakness. This currency pair is trading inside of a retracement zone at 1.4499 to 1.4435. The main trend is down, but this market may be trying to form a secondary higher bottom which could indicate the start of a fresh rally. A close over 1.4499 will be a sign of strength. A close under 1.4435 will indicate further weakness.
The direction of the U.S. equity markets is controlling the movement in the USD JPY. Stronger equity markets means greater demand for risk and a higher Dollar/Yen. Risk aversion will weaken the Dollar/Yen. The key price level to watch is the 50% price at 91.61. This price is acting as a pivot today.
The late break in the U.S. stock indices sent Japanese Yen sellers scrambling to cover late into the close. This helped the USD JPY finish below 91.61, setting up the potential for lower markets on Tuesday.
The drop in demand for risky assets pressured the commodity-linked New Zealand, Australian and Canadian Dollars on Monday. The AUD USD chart suggests that downside momentum is building which should drive this market through the most recent bottom at .8067. The main trend turned down in the NZD USD late last week and continued lower on Monday. Downside momentum should be enough to carry this market to .6560 over the near-term. The Dollar/CAD finished flat but should rally on Tuesday if U.S. equity markets continue to break.
Talk of a drop in overall demand for raw materials and commodities because of a slowdown in the global economy is likely to keep downside pressure on all commodity-linked currencies over the near-term. The cool-off in China’s economy is expected to create a huge drop in demand for crude oil, gold and other industrial metals. This should mute the growth of the Aussie economy. Last month the Reserve Bank of Australia left interest rates unchanged. Based on the recent action in the Australian Dollar, it looks as if investors are already expecting the RBA to sit on its hands in July.
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