Strong U.S. economic reports, lower crude oil prices, and hawkish comments from the Federal Reserve helped the U.S. Dollar gain versus the Euro for the second straight month.
Given this favorable shift in the fundamentals toward the Dollar, traders are now waiting for negative news from the ECB or the Euro Zone to trigger more upside action.
Technically, the market is slightly oversold. Holding support at 1.5453 could set up a short-covering rally back to 1.5640 – 1.5682.
Shift Out of Commodities and into Equities is Bullish for USD/JPY
This pair traded sideways most of the day during a holiday-shortened week. Strong stock buying supported the gain this week. If investor appetite for risk continues to grow, then traders will continue to borrow in Japan and invest in the higher yielding assets in the U.S.
With the U.S. economic picture improving, look for more interest in this pair as the veil of uncertainty is lifted. Fresh money leaving the energy complex could find its way to USD/JPY
This week, the USD/JPY broke out to the upside following several days of range bound trading. Once the market can clear the two old tops at 105.44 and 105.71, the charts indicate a potential rally to 107.64. Look for the old tops to form a support zone. If this fails to hold, then wait for a pullback to 104.47 to initiate new buys.
Firm Tone in GBP/USD Puts Pair in Position to Rally Next Week
The British Pound stalled in its attempt to break out over this week's high at 1.5818, but fresh buying on small breaks has kept the market in a position to break out to the upside.
Much of the recent strength in the Pound can be attributed to the financial markets signaling an end to rate cuts by the Bank of England. The BoE has to decide by June 5 whether to cut rates to stimulate the economy or raise rates later in the year to combat inflation.
Despite low consumer confidence and a tumbling housing market, traders are anticipating an economic recovery in the U.K. much like the recovery in the United States. This is why the market is leaning toward leaving rates at 5%.
The charts indicate a break out through 1.9882 could trigger a rally to 2.0027.On the downside, aggressive counter-trend buyers could go long at 1.9622 to 1.9608.
Profit-takers Hit USD/CHF
The main trend is still down in the USD/CHF market. A pair of tops at 1.0601 and 1.0625 is keeping a lid on any rallies.
This pair was highly correlated with the U.S. Stock market this week as better than expected economic reports lifted some of the uncertainty still lingering in the U.S. financial markets.
Given the current bearish chart pattern, the stock market would have to rally substantially to turn this trend up. The minor reversal down indicates a break to 1.0371 to 1.0334 is likely. Counter-trend buying would have to come in at this zone to help provide support.
USD/CAD Rallies on Worse than Expected Canadian Growth Figure
The USD/CAD rallied as the Canadian government released a report showing that the Canadian economy grew less than expected. The economy surprisingly fell from up 0.8 percent to up 0.3 percent on the break. Talk is already circulating that the Bank of Canada will have to cut rates by 50 basis points at its next meeting on June 10.
This contraction in the economy combined with a potential top and subsequent hard break in crude oil, may bring heavy selling into the market next week. The charts indicate a minimum rally to 1.006 is likely on this news.
AUD/USD Could Correct Further as Lower Commodity Prices Cool the Economy
Lower commodity prices, especially the gold, is putting pressure on the Aussie. This should trigger a profit-taking break back to at least .9472 to .9429. With the main trend up, this zone should offer the first buying opportunity.
Traders are not chasing the AUD/USD at current levels after being burned a few times at these levels over the past few months.
Weak Economy and Lower Commodity Prices Put Pressure on NZD/USD
The NZD/USD could not change the trend to up this week despite several opportunities to break out over .7937. The chart pattern is now suggesting a minimum break back to .7729 - .7683.
Despite the attempt to stimulate the economy with a tax cut, traders have been reluctant to buy strength at current levels because of lingering bearish fundamentals such as weak housing and high unemployment.
Trend traders can stay short as the chart pattern and the fundamentals support a renewal of the downtrend. Counter-trend traders can look for a quick rally if .7792 to .7683 holds as support.
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