On Tuesday, the focus will be on the release of the March 18 FOMC minutes at 2:00 EDT. The report is expected to say that the Fed is going to take a less aggressive stance toward lowering interest rates. The news came out Sunday night so Forex traders have had the opportunity to make adjustments to their positions. Traders will be reading the minutes closely with the intent of interpreting the strength of the language toward another interest rate cut. This interpretation is going to be the driving force in the markets on Tuesday and Wednesday.
The Commitment of Traders report showed a huge amount of long Euro futures traders. Contrary opinion says they cannot all be right. The inability to make a new all-time high given the bearish U.S. employment numbers and the weakening Euro Zone economy are signs that the Euro may be topping. The European Central Bank meets on April 10. They are expected to leave rates unchanged. The language from their report will be closely watched as to future rate changes. The Group of Seven nations meet on April 11. They are supposed to announce no intervention on either side of the market at this time.
The chart pattern is indicating a developing double-top formation. Due to the size of the number of longs in the EURUSD, it seems to be taking its time distributing out this top. The true sign of the double top will be a break through the last main bottom at 1.5341. This action will turn the main trend to down on the Euro chart with a possible retracement to 1.517.
The Bank of England meets on April 10. They are expected to cut rates 25 bp. The combination of financial market turmoil and a weakening economy is cutting into growth and tax receipts.
The main top in the GBPUSD is 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 next downside target is 1.9660.
Both the USDCHF and USDJPY traded lower as aggressive risk seekers borrowed money in Switzerland and Japan to buy Dollars for investment in the stock market. Equity traders are showing more confidence in the U.S. credit markets by committing to the long side of the stock market.
A strong breakout rally in the U.S. stock indices will trigger a USDCHF rally. The daily charts indicate that 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.
In fundamental news, the Bank of Japan meets April 8 and 9. Expectations are for the BOJ to leave interest rates alone. The main trend is up which means traders should focus on the long side especially after a one or two day break. Support is at 101.24. The key resistance prices remain 102.17 and 103.69. If the latter price goes, then look for a quick rally to 104.24.
Building permits in Canada were down for the fourth straight month. This news coupled with a weak job growth report on April 4 is likely to put downside pressure on the Loonie. The bearish perception is that the Canadian economy is tied too closely to the weak U.S. economy. The bulls are still looking at strength in the crude oil market as a reason to hold on to the Canadian Dollar. This mix of fundamentals is keeping the market at or near par. The Bank of Canada is treating the rally in crude as a short term event and is instead focusing on the weak economy. It is expected to cut rates 25 bp on April 22.
The AUDUSD once again failed to rally through any significant resistance. A report showing a slow down in economic growth weighed on the market on Monday. The trend is down, and the bears received encouragement as another report showed the trade deficit unexpectedly widening. Clearly the economy is cooling with some economists calling for a 25 bp cut over the next 12 months. Continue to sell rallies and stay short. This may develop into a long-term trade.
Expectations of a contraction in the New Zealand economy during the second half of the year is expected to attract renewed interest in the short side. The NZDUSD may also begin to feel downside pressure as business confidence is beginning to weaken. This market is likely to see limited upside action. Sell rallies if given the opportunity. The Reserve Bank of New Zealand meets on April 23. There has been no comment as to its expected action toward interest rates.
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