While yesterday's word of the day was aversion, today the word for investors was value. Global equity traders snapped up cheap shares of energy-related shares on Thursday triggering a huge short-covering rally in stocks which whet the risk appetite of a few traders. I will not say that the appetite for risk is strong at this time as that will not be known until the trend in equities actually changes to up, but nonetheless, even bearish traders have to eat sometime. Let’s hope that Thursday's rally was just an appetizer before the main meal.

The EUR USD recovered after the rebound in crude oil futures and crude oil equities. Some of the rally may have been related to technical buying in front of the low for the year at 1.2329. Other traders feel that the early morning news about a second consecutive contraction in the German economy was already factored into the price of the Euro. With the German economy facing its worse recession in 12 years, investors are already calling for more aggressive interest rate cuts by the European Central Bank. Thursday's rally may have enough momentum to trigger a short-covering rally on Friday but the longer-term fundamentals still support a stronger Dollar.

Shorts lightened up on the low in the GBP USD on Thursday as a rally in equities triggered profit-taking and short-covering. Traders can look at the rally in two ways. Aggressive traders can try to play the upside for a counter-trend short-covering rally. Trend traders can sit back and wait for another opportunity to get short driven by the bearish fundamentals which have been piling up. The Bank of England is already on record calling for a further contraction in the economy in 2009 and threatening to cut rates to zero. Short-term the economic picture is gloomy because of increasing unemployment, lower retail sales and falling home values. The BoE has done all it can to stimulate the economy. Now it is up to the banks who have been the recipients of this aid to start moving money into the mortgage markets. Until the housing industry can turn around in the U.K., the British Pound is expected to continue to decline.

The U.S. Dollar reversed course and surged against the Japanese Yen as equity markets rebounded driven by strength in energy stocks. Technically, the charts indicate that the USD JPY completed a Fibonacci retracement at just about the time the buying surfaced. Traders entered the day nervous as chatter of an impending intervention by the Bank of Japan dominated the early part of the New York trading session. This kept shorts on the buy-to-cover-button most of the day. A talk by Japan's Finance Minister Shoichi Nakagawa also fueled the possibility of an intervention. In his talk he emphasized that the strong Yen hurts the Japanese economy and that current volatility is destabilizing and unnecessary. Traders read this as a sign that the BoJ was getting ready to act with conviction.

The USD CHF reversed direction from its high for the day as profit-taking hit the market. Fundamentally the Dollar received support overnight from the news that the German economy has contracted for the second consecutive month. This led to speculation that the Swiss Economy would be hurt by the growing recession in the Euro Zone. After the Euro stabilized, traders decided the USD CHF had gone far enough on this current leg up and took profits. The charts indicate the safest play is from the long side because of the strong uptrend. This means that traders should be patient and wait for a pullback.

The flip to the upside in the crude oil market helped put in a top in the USD CAD. Traders had been expecting an acceleration to the upside as the falling crude oil market seemed poised for a test of $50. U.S. energy stocks bottomed early in the trading session, and continued to rally throughout mid-morning. This action triggered short-covering in the crude oil market. Profit-takers hit the USD CAD once traders realized the short-covering rally in crude oil was real. The charts are beginning to indicate the possibility of the formation of a secondary lower top in the U.S. Dollar versus the Canadian. This may mean the Canadian Dollar is bottoming. The divergence between crude oil and the Canadian Dollar is becoming clear. The inability of the USD CAD to make a new high when the crude oil was posting a new low for the year could be a sign that these two markets are decoupling at least for the short-term.

The Aussie rallied as the Reserve Bank of Australia intervened for the fourth time in a month to help stabilize the currency. Traders were caught by surprise as there has really been no sign of excessive volatility in the Australian Dollar recently. This action is sending a signal that the RBA is serious about defending its currency. The move also opens the door for intervention by other central banks to prop up their currencies. The charts indicate that the action by the RBA has drawn two support lines in the sand at .6339 and .6008. Aggressive traders can start to look at the long side using these prices as "leans" knowing that the RBA is likely to defend the Aussie. Thursday’s action may begin to put fear in short-traders who may decide to throw in the towel. This action coupled with fresh buying may drive the market through .7013 and turn the main trend higher.

The New Zealand Dollar closed lower but bounced off the low of the day as traders seemed to be waiting for an intervention to support the currency like their neighbors in Australia. When it became clear that this intervention was not going to happen, the market settled into a range. Friday will be a critical day for this market as the current correction has put the Kiwi in a potential buy zone. It will be interesting to see if just the threat of an intervention by the Reserve Bank of New Zealand will be enough to scare shorts out of their positions. Higher stock and commodity markets may provide additional support to this currency pair.

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