Sellers continued their assault on the USDCAD for the second day in a row as Canadian-linked commodities firmed. Strong rallies in Canadian exports like gold, crude oil and wheat helped move the CAD in a position to break key support at 1.009. This was a sudden reversal in trend because it was only Monday when the USDCAD looked as if it was going to punch out the high for the year at 1.038. A break through 1.009 could trigger further weakening to .9944.
This may only be temporary as many of the commodity markets are oversold and going through a normal retracement back up. Without hedge fund support to drive commodity prices higher, this may only be a temporary blip in the charts. Should the gold, crude and wheat reach a short-term top after alleviating the selling pressure, look for traders to go back to the key fundamental controlling the USDCAD. This key fundamental is a weakening economy. Canadian financial traders are still anticipating a rate cut by the Bank of Canada at its next meeting. Once the commodity markets resume the downtrend, look to buy the USDCAD.
The main trend is still up but vulnerable to a break to 1.5617 - 1.555 over the near term. Tuesday's break was enough to take away some of the excessive bullishness. Traders may stand aside today ahead of Friday's U.S. unemployment report. Based on the short-term pattern, look for a small retracement back to 1.572 - 1.576.
The bigger picture is suggesting a developing double-top formation. A trade through 1.534 will confirm this formation. If the market goes through 1.534, the main trend turns to down on the daily chart. Until this occurs, consider this down move position evening ahead of the U.S. unemployment report.
The fundamentals may be shifting in favor of a stronger Dollar especially since the credit crisis seems to have abated. In order to generate some real strength and trigger upside momentum, the unemployment report has to be bullish.
The ECB remains hawkish on interest rates, citing a strong inflationary presence. Start to watch the Euro Zone economic reports for any signs of an economic slowdown, particularly in exports. Rumors are also circulating that the Russian Central Bank has been a big buyer of Dollars this week. Remain flexible until the U.S. releases its unemployment data on Friday. Today could be a choppy, two-sided trade.
In the USDCHF, the charts indicate this pair is still in the base building stage with a bigger rally to follow on a breakout through 1.025. At this price, the main trend turns up on the daily chart and sets up a further rally to 1.036. Look for support at .9991.
Rumors are circulating that Japan may be next in line for the sub-prime mess. Nothing has been confirmed yet, but it may weigh on traders' minds Wednesday night and Thursday. The Yen may be particularly sensitive to this potentially bearish news if trading is thin due to the report on Friday.
The USDJPY main trend is up on the daily chart. The first upside objective of this rally was met at 102.17, the next upside target is 103.69. If this price goes, then it is likely to rally quickly to 104.24. Downside support is at 101.24. A new main bottom has been formed at .9854. With the trend up, look to buy dips if given the opportunity.
The new main top in the GBPUSD at 2.1093. The market has to take this price out to turn the trend back to up. Until this takes place, continue to sell rallies. The first upside zone to sell is 1.9961 to 2.0015. The main downtrend was reaffirmed earlier this week on the break through 1.9735. The next downside target is 1.9660.
Fundamentally, lower UK housing prices are putting pressure on the Bank of England to cut rates next week. Perceptions are that the worldwide credit squeeze is hurting the UK economy. UK financial markets are forecasting a prolonged period of slower growth. The fundamentals along with the downtrend suggest lower markets to follow.
The NZD rallied after oversold technical indicator triggered short covering on Tuesday and a follow-through rally on Wednesday. The main trend is down and the fundamentals are negative. There is also a threat of a cut in interest rates due to a weakening economy. Look to sell a retracement to .7942 - .7980. Be out of all shorts if the market trades through .8103.
The Aussie Dollar rallied on a stronger gold market. Earlier this week the AUSUSD fell on bearish comments from the Royal Bank of Australia. This is a long-term fundamental and likely to have a bigger influence on the direction of the Aussie.
A new main top has formed at .9254. Stay short as long as this price holds. The charts indicate a break through .9031 could trigger a sharp break on the downside. With the main trend down, look to sell a rally back to .9220. Make sure you are out of your shorts if .9254 is penetrated.
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