The Dollar finished the week by posting its biggest three-day rally in almost three years. Since the stronger than expected PPI report on April 16, the Dollar has been trading as if the next Fed rate cut on April 30 will be the last for a while. Despite comments from the ECB that it will do anything to control inflation, traders would not bite on the breakout above 1.60 earlier in the week. Whether it was the threat of a G-7 intervention or signs that the Euro Zone economy is beginning to weaken, longs liquidated the Euro in droves, putting it in a position to turn the main trend down for the first time since late January.
The strength in the Dollar could be reduced to perceptions that the spread between U.S. interest rates and the Euro Zone rates will begin to tighten. This thinking is forcing longs who bought in anticipation of the spread widening to liquidate their positions.
The EURUSD posted a weekly closing price reversal down, which could lead to the start of a three-week decline. The key to this developing pattern is the follow-through break next week. The main trend turns down on a trade through 1.5509. A break through this level does not necessarily mean acceleration to the downside, however. Often after a confirmation of a reversal top or a change in trend, the market becomes oversold and snaps back hard. Currently, this snap-back retracement would take it back to 1.5786. The downside objective of this break from the top is 1.5228.
The GBPUSD traded mostly lower for the week as traders were trying to digest the Bank of England's plan to buy back poorly performing mortgages. The move is intended to free up the extremely tight credit market and stimulate the weak housing sector. Feelings are mixed as to whether the BoE will continue to cut rates as retail sales were stronger than expected in March. This indecision is partly the reason for the sideways to lower trade. Traders will be looking for clarity next week as to the short-term direction of interest rates.
GBPUSD closed lower for the week. The market has been range bound for several weeks inside 1.959 to 2.002. The trend is up on the daily chart, but needs to regain 2.002 to reaffirm the uptrend. A trade through 1.959 turns the main trend to down.
The long-term weekly chart is up, but has to hold 1.959. A break through this level targets 1.933. With the main trend up and the weekly trend down, continue to look for choppy two-sided trading.
The strength in the U.S. stock market was largely the cause of the rally in USDJPY last week. Traders with a taste for a little more risk bought Dollars and sold Yen. The stock market should continue to drive the direction of this pair.
The main trend is down on the weekly USDJPY chart, but the market is still finding strength from the weekly reversal bottom at 95.72 made in March. The market is approaching a major 50% target at 105.18. There may be some selling on the first test of this level. If it regains the 105.18 level the next price target is 107.42.
It took a while but USDCHF finally broke out to the upside following the weekly reversal bottom at .9674 the week ending 3/21/08. The first upside objective was reached last week at 1.038. The next upside target is 1.054. There may be some profit taking inside of this zone for a short-term correction.
The Canadian Dollar has found support for several weeks due to the strength in the crude oil complex. With the crude oil giving back much of its gain for the week, Canadian Dollar traders have now started to focus on the bearish economic fundamentals. A combination of weak crude oil with weak economic numbers could be the trigger for a higher USDCAD trade. The weak economic numbers are indicating another rate cut at the next Bank of Canada meeting.
The weekly trend is up in USDCAD. The strong close has the market in a position to challenge the two tops at 1.032 and 1.037. This price is the acceleration zone. Breaking out over this area will be a strong sign that the U.S. economy is firming versus Canada. Support moves up to 1.0017 this week.
Weak commodity markets put downside pressure on the AUDUSD and NZDUSD late this week. Inflation is heating up in the AUDUSD with the Reserve Bank of Australia looking to hike rates once again. The Bank of New Zealand is looking at an economic slowdown and looking to lower rates.
The AUDUSD surged to a new 24-year high early last week, but was quickly met with sellers. The subsequent selling pressure was strong enough to trigger a weekly reversal down. The market needs a follow through break to confirm the top and set up a minimum three-week break. The first downside target is .9247, followed by .9177.
The NZDUSD showed its weakness last week by finishing at the low end of the trading range. The weak close sets up a break of key weekly support at .7781. A move through the price turns the trend down on the weekly chart with a possible break over the intermediate term to .7383.
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