As the week winds down, the focus today will be on three currency markets which formed closing price reversal tops last week. This week the September Euro, September British Pound and September Canadian Dollar confirmed their technical reversals from last week but only the Euro is in a position to close higher for the week.
The September Euro is trading inside of a major range formed by 1.3832 to 1.4449. The retracement zone inside of this range is 1.4141 to 1.4068. This week the Euro broke into this retracement zone only to find support at 1.4087.
The subsequent rally from the low helped form another minor range of 1.4449 to 1.4087 with a retracement zone at 1.4268 to 1.4311. Yesterday’s high completed a test of this retracement zone when it stopped at 1.4329.
From a technical standpoint, this action was to be expected. If new sellers stepped in at 1.4329 then look for the start of another leg down to take out the bottom at 1.4087 and turn the main trend down.
Fundamentally, an unexpected improvement in Euro Zone economies during the second quarter helped firm the September Euro yesterday, but overnight news about weaker consumer prices in the Euro Zone has the Euro under pressure. Today’s U.S. reports regarding CPI and consumer sentiment are likely to set the tone of the day.
Last week’s announcement by the Bank of England to expand and extend its quantitative easing program is still weighing on the minds of traders. This bearish news helped put in the top last week in the September British Pound that led to follow-through selling this week. The news yesterday that the French and German economies unexpectedly grew during the second quarter helped trigger a short-covering rally because of increased optimism, but overnight it looks as if this news was not enough to combat last week’s more bearish BoE decision.
Technically, the Pound failed to retrace to a 50% price at 1.6716 before new selling pressure surfaced at 1.6680. The charts indicate that a secondary lower top may be forming. New selling pressure could help drive this market down through the last main bottom at 1.6389. This move would turn the main trend to down.
The September Canadian Dollar is showing signs this morning that its two day short-covering rally may be ending. Based on the short-term range of .9408 to .9028, the upside target of any rally was .9218 to .9263. Yesterday’s rally stopped at .9266 before selling off.
The key as to whether this market continues its down move will be today’s U.S. economic data. Weaker consumer sentiment is likely to hurt the Canadian Dollar. A better than expected number should trigger renewed appetite for risky assets which should help the Canadian Dollar rally.
Fundamentally, traders should watch the U.S. consumer credit for direction. This report is likely to set the tone for the day. Technically the charts are indicating a top. The rallies the past two days look like short-covering. If the fundamentals can confirm the technical picture then look for renewed downside pressure to turn the trend down in all three of these currency markets.
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