EURUSD: Comments by the ECB's Trichet caused some volatility in the market on Monday. Trichetâ€™s warning that Excessive volatility and disorderly movements in the exchange rates are undesirable for economic growth rallied the Dollars as traders feared some sort of intervention. This thought was quickly overcome and the Euro retraced back to almost unchanged. What has to be understood at current levels is that the problem is not a strong Euro, but a weak Dollar. The ECB's mandate is to fight inflation so they have no incentive to cut rates to help the U.S. economy at the Eurozoneâ€™s expense. The Fed does not seem to be concerned either. The Fed likes the fact that the trade deficit is being cleaned up, or as Trichet said, I have noted with extreme attention the statement of U.S. authorities reaffirming that the strong dollar is in the interest of the U.S. economy. Volatility in the EURUSD is a concern of Trichet, but is he getting volatility confused with a trend? I have seen some range expansion the past two weeks along with a nice uptrend. I have not seen any wild swings or disorder. The fact that the market sat in a range for two months before breaking out caused the recent rapid expansion but that is normal activity for a market. For two months, traders were unsure of the Euro/Dollar relationship because of Fed actions. Once economic reports confirmed weakness and another rate cut, traders acted on the news with confidence. There was not any malicious attempt to cause excessive volatility. There was only good money entering a market that had an established long-term uptrend and fundamentals to back it. I wish Trichet would stop playing analyst and just stick with what he knows best. Some may say that he was the source of volatility on Monday because his comments added confusion to the market.
Technically, the main trend is still up; however, the market did not confirm the daily close price reversal top from Friday. A trade through 1.5313 confirms the top and could trigger some profit-taking and selling pressure. Holding the confirmation back an additional day may cause large sell orders to build up which could exacerbate the break once 1.5313 is broken. If you want volatility, then watch the market once this low is broken. The market is also in a developing bearish position based on the Gann angles. Taking out 1.5357 may trigger a sharp break lower. Once the top is confirmed, then look for a decline to 1.4952 â€“ 1.4830. A break of both Fridayâ€™s low and the Gann angle is likely to start a big correction back to 1.4952 â€“ 1.4830. Counter-trend traders should start looking for a place to get short. Longs should tighten up their stops.
GBPUSD: Based on the strong producer price and monthly output news released on Monday, the British economy is confirming the emergence of inflation. Producer prices jumped by 1.7% in January, the largest increase since 1986. Monthly output rose 0.3 percent in February. This coupled with a 1.0 percent increase in January has produced the highest annual rate since 1991. If inflation is in the picture, then expect the BoE to pass on a rate cut at the next meeting. This is what is producing the strength in the Pound right now.
The GBPUSD continued to work its way toward the major 50% price at 2.0249. This is based on a major range of 2.1161 to 1.9336. There may be profit taking at this level on the first test, however, regaining it is likely to trigger more rallying to the .618 retracement price at 2.0464. Down trending resistance is at 2.0291. Counter-trend traders can look for a selling opportunity at 2.0249 to 2.0291. On the downside, if weakness develops, then look to be a buyer on a break back to up trending support at 1.9920.
USDJPY: This market continued its weakness as traders dumped Dollars as the U.S. equity markets weakened throughout the day on Monday. Additional support came from a private sector machine order report that showed an unexpected surge. The BoJ has not made any comments regarding the current level of the Yen and is not expected to be a player.
Technically, the main trend continued down based on the lower high, lower low formation. Look for an opportunity to sell a rally back to 104.11. There could be a sharp technical bounce on a test of 100.89. The market is getting close to oversold based on some indicators. This may lead to a surprise short-covering rally on a reversal bottom formation. Shorts should tighten stops especially if the market makes a reversal on an hourly chart.
USDCHF: The Swiss Franc strengthened on mounting credit losses. A reduction in holdings of high-yielding assets funded in Switzerland triggered more weakness in the USD. Risk aversion is benefiting the Swiss Franc. The CHF advanced as the U.S. stock market dropped as much as 1.2 percent during the day session. Watch the U.S. bank markets as credit problems escalate.
The USDCHF did not confirm the reversal bottom it made on March 7. Based on the current set-up, there may be a retracement back to 1.06 to 1.07 before new sellers arrive. The first hurdle, however, is to overcome the down trending resistance at 1.0347. Be patient and let the market retrace before initiating new shorts. Aggressive traders can play the long side for the retracement. Existing shorts should bring down stops above the March 7 high at 1.028.
USDCAD: The Canadian Dollar is likely to suffer this week if the commodity markets continue to show weakness especially in the Wheat and Gold. The CAD traded lower most of the session on Monday as traders dumped the currency in favor of the safety of bonds. Continue to look for a flight to quality rally to bonds if the U.S. equities markets sell off sharply lower. This action is likely to help the USD rally against the CAD.
Weakness in the commodity markets is likely to be supportive based on the current chart pattern. The key is to overcome 1.01. Multiple resistance points come in at this area. Regaining 1.01 may trigger more short covering to 1.025.
AUDUSD: Traders sold AUD and bought bonds because of a fear of that credit problems in the U.S. would spread throughout the world. The market is also still feeling pressure from RBA comments about the economy slowing down over the near term.
The AUDUSD failed to rally through down trending resistance at .9339. The recent rally was from .8873 to .9499. Any more weakness sets up a further decline to the retracement zone at .9186 to .9112. Additional up trending support comes in at .9143 and .9103. Longs should tighten stops. Aggressive traders should start to look at the short side at current levels. Aggressive traders should start looking at the long side near .9143. More conservative buyers are likely to step in at .9112 to .9103. Do not get caught short selling into this zone no matter how weak the market looks at the time.
NZDUSD: The NZD suffered as traders sold and sought the safety of the bond market. Technically, .8035 is major resistance for selling opportunities. The chart suggests that a break to .7799 to .7700 is likely. Additional Gann angle support is at .7732. Look to get short using the charts. Do not look at the long side until the market finishes its 50% retracement.
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