Surging crude oil and falling consumer confidence helped drive the Dollar lower against the Euro. Traders are expressing concerns that the higher crude prices may trigger an economic slowdown.
It was a tough week for the U.S. economy. Despite recent talk that the Fed may be ending its cycle of interest rate reductions, there are still concerns in the Forex community that the U.S. economy may not be robust enough to avoid a prolonged economic drawdown, or in the worst case, a recession.
A series of U.S. economic reports this week ending with weak consumer confidence on Friday suggest that there is still weakness in several sectors of the economy despite the Fed’s efforts to stimulate the economy with interest rate cuts earlier in the year.
Watch the financial markets in Chicago to see if traders begin to price in the possibility of another rate reduction at the next Fed meeting on June 25.
The EURUSD finally turned the daily trend up on the trade through 1.5595. The first upside target is 50% of the break from the all-time high at 1.5651. If this area gets broken, then look for a further rally to 1.5738.
USDJPY Weakens on Uncertainty in U.S. Economy and Lower Stock Market
Sellers hit the USDJPY on Friday as the U.S. Stock market broke as crude oil surged to new all-time highs. With the future of the U.S. economy uncertain, traders flocked to the Yen for safety.
For the third day in a row, traders appear to be reluctant to buy Dollars at current levels so close to the old top at 105.71. The selloff formed a secondary lower top at 105.43.
The lower close suggests more downside is likely with 102.56 the next target. A break through this price will change the trend to down. The market could then begin to accelerate down to 100.72.
Technical Buying Triggers Weekly Reversal Up in GBPUSD
Technical buyers supported the GBPUSD this week in front of three major bottoms at 1.9360, 1.9336 and 1.9181. The reversal bottom on the daily chart from 5/14 was confirmed by two straight days of higher highs and higher lows.
The market also closed up for the week after reaching nine-week lows.
These two bottoming signals indicate a potential rally to at least 1.9964 before encountering resistance.
The fundamentals are still bad for the U.K. economy due to poor housing numbers, but traders see weakness developing in the U.S. economy and are now adjusting their positions to reflect the possibility of an interest rate cut by both the Bank of England and the Fed.
Traders Seek the Safety of the Swiss Franc and Sell USDCHF
Traders sold Dollars against the Swiss Franc on Friday as the U.S. stock market broke on news that the economy is showing signs of weakness. The market looks as if traders do not want the risk at current levels and are more likely to start buying the Swiss.
The USDCHF also broke through an up trending support angle indicating developing weakness. The close near the low indicates that a test of 1.0389 is likely.
The USDCHF failed to breakout over 1.0625 for the fifth straight day and is now poised to the last swing bottom at 1.0389. A failure to hold this level turns the main trend to down and could trigger a sharp break to 1.0256.
The charts indicate that there is room to the downside.
Surging Crude Oil Puts Pressure on USDCAD
The USDCAD broke hard to the downside on the surging crude oil market. The combination of higher commodity prices and an improving Canadian economy have proved bearish for the USD against the Canadian Dollar.
Technically the market reached a key retracement price at .9945 and attracted some buying. The rally was just enough to post a daily reversal up. A follow through rally is needed on Monday to confirm the reversal bottom at .9942 and trigger a retracement to 1.0092.
AUDUSD Makes 24-Year High
The AUDUSD rallied to a new 24-year high after breaking out over a down trending Gann angle at .9459, which had been holding the market down since April 23.
Two main swing tops at .9510 and .9544 were also taken out in the rally.
Commodity exports account for a large percentage of the Australian economy so the higher the crude moves, the more likely the uptrend is going to continue. Expect to see a comment from the Reserve Bank of Australia concerning a possible surprise rate hike to stem the currency volatility.
Oversold Technical Conditions Fuel NZDUSD Rally
The NZDUSD confirmed its reversal bottom from the May 15 bottom at .7536. The first objective at .7736 was met on a strong up move due to oversold conditions and short covering.
The trend is still down so the market may back off from here with a possible break back to 76.40 for a counter-trend buying opportunity.
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