The fundamentals have pretty much been laid out for traders to chew on. Now it is up to the technical traders to put the finishing touch on the Euro top. Last week the Fed's action to cut rates only 75 bp and the subsequent selloff in commodities gave a signal to the global markets that further aggressive cutting would not necessarily take place. Furthermore, it showed that the Fed was not going to trigger an inflationary spike. Euro traders were caught long in huge positions that were anticipating a further pasting of the Dollar. When they did not get what they wanted, smart money took profits and are now standing aside for the next clear signal.
Technically, the reversal top last week should have brought in heavy follow through selling if this was truly going to be a top. Even if it breaks last week's low, all it is going to do is confirm the reversal top, not a change in trend. In addition, a follow through break is likely to take the Euro to 1.517 where aggressive buying should once again surface. The best sign that a near term top is being formed will be on a failure to make new highs on the subsequent secondary retracement. In other words, look to buy a break to 1.517 and be prepared to go short on a minimum 50% retracement on this first leg down. At this time, this price comes in at 1.562.
Trading in Europe and Asia was light on Monday as the Easter holiday was still being celebrated. The USD was supported by better than expected existing home sales. There are several other reports out this week including Consumer Confidence on Tuesday at 10:00 EST, which should dictate the short-term direction of the market.
In tight trading, the Yen and the Swiss traded lower as traders sought higher yielding assets following the strong rally in U.S. equity markets. Near term, support is at 98.30 in the USDJPY with resistance at 101.92. The USDCHF is likely to find support at .9944 with sellers looking at 1.0325 â€“ 1.0357 to stop the rally.
In the UK, traders are debating whether the Bank of England will continue to cut interest rates. Weak unemployment and potential bank problems support another round of cuts while the recent strong retail sales suggest otherwise. This week the current account report, house prices and CBI distributive trade are likely to determine interest rate direction. Look for support to develop at 1.9879 to 1.9757. With the trend down, sellers are likely to surface at 1.9954.
The Canadian Dollar rallied on the overall strength in U.S. equity markets and the demand for its higher yielding assets. Overall, weak commodity prices may weigh heavily on the Canadian dollar if another round of commodity liquidation takes place. 1.0379 is the next upside target in the USDCAD. Near term, support is at 1.0093.
The AUDUSD and NZDUSD traded in a tight range. Short-term support is at .8961 in the AUD with .8500 the next major target. Look for a selling opportunity on a rally back to .9213. The NZD could attract buyers at .7832. If this fails then 7799 is next. With the main trend down, sell a rally back to .8040. Fundamentally, both pairs are struggling to regain the recent strength as their central banks have hinted against further interest rate hikes. April 1 is a key date for the RBA. At this time, it is expected to leave rates alone. Inflationary news may trigger another test of the top in anticipation of a hike.
Continue to monitor the news for any indications of a slowdown in Eurozone exports. The next ECB meeting is April 10. Poor exports numbers may cause the ECB to consider a rate cut or at least to soften its stance against inflation. Talk of a possible G-7 coordinated intervention has trickled into the market. Watch this situation closely as the next meeting is April 12 and April 13.
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