The EUR/USD fell sharply lower on Tuesday as this pair received a double-dose of negative news. A combination of bearish factors today including weakening Euro Zone consumer confidence and better than expected U.S. new home sales triggered strong selling after the Euro failed to hold small gains above last week’s high.
Bearish economic news seems to be building in the Euro Zone, suggesting that the trend may be turning down in the economy. German and French consumer confidence both fell more than forecast in May.
In the U.S., although consumer confidence fell to multi-year lows, a surprisingly stronger than expected home sales report attracted buyers to the Dollar.
The combination of the bearish fundamental news out of the Euro Zone and stronger than expected housing numbers should linger in the market for a few more days, thereby putting pressure on the EUR/USD.
Technically, the Euro posted a daily reversal down, which could prove to be a bearish pattern should there be follow through selling tomorrow. The charts are set up for a break to 1.5550 to 1.5487.
USD/JPY Rallies on Crude Break and Stock Market Rally
Traders bought the USD/JPY as the need for higher priced assets funded by cheap Japanese loans fueled the stock market. The break in crude oil also made the Dollar more attractive as traders lifted their hedges. The stronger than expected home sales number also weighed on the Yen. Traders have been indecisive lately about the direction of the USD/JPY because of economic uncertainty in the U.S. Today's report may provide the confidence for traders to drive this pair higher.
Technically, the USD/JPY remains range bound. In bullish news, the market overtook a downtrend line at 103.99. This signals the start of a rally. Look for the market to test the two tops at 105.44 and 105.71. A break through these two levels reaffirms the up trend.
U.K. Housing Numbers Come in Bad; Bank of England Ponders Rate Cut
The trend could not turn higher on the recent rally and is now poised to correct at least 50% because of the poor U.K. housing numbers. Much of the rally the last week was driven by better than expected retail sales, but the dismal housing market is raising concerns that the consumer will begin to cut back on his spending habits if home prices continue to decline.
Technically, the charts indicate the start of a short-term break. The recent rally was 1.9362 to 1.9852. This range creates a 50% support price at 1.9607, followed by a .618 support price at 1.9549. The market is expected to break back to this zone at a minimum before new buyers will attempt to stop the break.
Swiss Franc Falls on Strong U.S. Home Sales Data
Buyers came back to the USD/CHF in a big way on Tuesday, as a report showing better than expected U.S. Home Sales brought buyers back into the long side of the stock market.
The main trend is still down, but Tuesday's action indicated that there still is buying interest on breaks rather than breakouts. The market still has to cross 1.0601 and 1.0625 to turn the main trend higher.
Crude Oil Topping Action Makes Canadian Dollar Vulnerable to Breaks
The USD/CAD rallied as traders, encouraged by the break in crude oil, bought U.S. Dollars. Concerns over U.S. economic weakness spilling over to the Canadian economy also caused selling pressure.
Talk is circulating that the Bank of Canada may have to cut interest rates for the fifth time since December which encouraged buying in the USD/CAD. Economic growth is down with inflation below target. These two factors are going to be considered when the BOC meets on June 10.
Should the crude oil break sharply, the USDCAD could possibly rally back to 1.0030. A break through .9818 could trigger a sharp break to the cluster of support at .9796 to .9709.
AUD/USD Stalls on Lack of Fresh News
The AUD/USD could not take out the nearly 25-year high posted last week at .9655 and backed-off on profit taking.
The market closed lower and in a weak position. The current chart pattern suggests that a break through .9649 could trigger a break all the way back to .9469. A normal 50% correction of the rally targets .9472 as the next downside target.
The lack of fresh news is causing buyers to hold onto orders for a better price. Stalling at the current level is a sign that the market is due for a correction. This forecasted break would not be due to new selling, but a lack of buyers. This move would set up another round of buying.
NZD/USD Still Struggling with .7937
The short-covering rally continued in the NZD/USD, but traders stopped short of breaking out to the upside at .7937. A trade through this price will turn the main trend up for the first time in weeks.
Increased liquidity in the economy due to an expected tax cut has been providing support for this rally. Traders have been reluctant to buy strength at current levels because of other bearish fundamentals still lingering, such as weak housing and high unemployment.
Technically, the NZD/USD poked through a downtrend line at .7890, but could not attract any fresh buying. Supporting this market is an uptrend line at .7896. A failure to hold this support may trigger a further decline to at least .7716. If the market remains in the current range, then a 50% break back to .7729 would be considered normal.
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