The U.S. Dollar traded higher across the board under light trading conditions on Friday. Trader sentiment continued to remain locked around risk aversion as uncertainty over the strength of the global economy prevailed.
The Euro reaffirmed its downtrend when it broke a swing bottom at 1.2732. A new main top on the daily chart was formed at 1.2921. The next objective is the major retracement zone at 1.2605 to 1.2433. This area represents a retracement of the 1.1876 to 1.3334 range.
Talk surrounding the strength of the Euro Zone recovery helped pressure the Euro but the most bearish influence was comments from European Central Bank council member Weber who said he thought the ECB should wait until the first quarter next year before considering an exit strategy. This ignited a huge sell-off in the Euro as traders read the comments to mean the Euro Zone economy was not as strong as perceived.
The British Pound broke minor 50% support at 1.5560 and an uptrending long-term Gann angle at 1.5549. This move tripped stops and caused a soft break into a .618 support level at 1.5457 before settling into a range.
It was reported this week that U.K. retail sales were stronger than expected, but this news wasn’t enough to sustain the rally. Concerns about inflation and the effects of new taxes and spending cuts on the economy continue to weigh on investors. Earlier in the week, the Bank of England minutes showed that the Monetary Policy Committee voted 8 to 1 to support this month’s interest rate decision. The minutes also showed that inflation was discussed as well as a rate hike. The BoE seems to believe that inflation will fall back below the target rate of 2%, if left alone, by 2012. The central bank is basing this assessment on its evaluation of data which it interprets to mean that the current high inflation rate has been caused by temporary events.
Flight to safety buying is driving the USD CHF higher. Former bottoms on the weekly chart are providing some light support, but the daily chart suggests the market should continue to remain under pressure. A series of tops at 1.0675, 1.0640 and 1.0626 are major resistance. The trend will remain down on the daily chart until these levels are violated.
The USD JPY is still consolidating inside of the 84.73 to 86.37 range. The market appears to be forming a support base as government and Bank of Japan officials try to decide the effect of the high priced Yen on the economy and whether to intervene. This market is expected to remain inside of a tight range until this decision is reached. This decision has the potential to exert a tremendous amount of influence on the market which is likely to lead to high volatility next week. In particular, a breakout to the upside could produce some tremendous gains as shorts will no doubt pay anything to get out of their positions.
The USD CAD is still ping-ponging between retracement levels at 1.0282 to 1.0579. Continue to play these levels until the market breaks out in either direction. The Canadian economy appears to be stuck because of the influence of the weakening U.S. economy. Uncertainty about future growth is cooling off the Canadian economy, leading to speculation that the Bank of Canada will leave interest rates at 0.75%.
Election concerns and the dumping of risky assets pressured the Australian Dollar early in the session before it stabilized. The trend is down but the chart indicates that there is room to break to .8644 over the near-term if sellers step back in after the weekend.
Polls are showing the election is too close to call with several analysts calling for a hung parliament. Taxes, spending cuts and the environment are key issues to be decided with this election.
The trend is down in the New Zealand Dollar. .7191 is new main top on the daily chart. A trade through this level will turn the main trend up. Downside momentum is slowed on Friday, but could pick up again if sellers show up. The chart indicates room to break to the .6977 level.
The Dollar Index finished the week on its high. Overall the shift in sentiment toward risk aversion triggered this week’s rally. Early next week the Dollar should react to U.S. housing data. At the end of the week, the GDP Second Estimate should have a huge influence on the direction of the Greenback. The consensus is calling for growth of 1.3% versus 2.4% previously.
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