Comments from Luxembourg's Finance Minister Jean-Claude Juncker helped rally the Dollar against the Euro. This is the second time in a week that Mr. Juncker spoke up as the EURUSD neared the 1.60 area. Like last week's statement, he expressed concern that the pace of the U.S. Dollar's decline will take a toll on economic growth.
His comments have made traders tentative at current levels as some traders anticipate an intervention over 1.60. The statements from Juncker, along with the statement from the G-7 on April 11, have created concerns amongst the long Euro traders but have not been strong enough to trigger a change in the trend.
The Euro has been trending higher because the fundamentals support a stronger Euro over the Dollar. There has not been a wild speculative buying spree. The trend has been up because the interest rate differential between the U.S. and the Euro Zone has widened. The ECB has been united in its battle to bring inflation down, while the Fed has been trying to simulate growth. These are the reasons why the Euro is likely to continue to head higher. Once the traders realize that Juncker is making comments without a plan to strengthen the Dollar, the Euro should establish support over 1.60 and gradually work its way higher.
GBPUSD is range bound as traders are still trying to assess the mortgage buyback plan presented by the Bank of England last week. This plan is expected to lead to more lending between banks and to stimulate the depressed housing markets. Recent reports are showing a slowdown in mortgage applications. Until the British Pound traders start to receive solid evidence that the housing market is turning, expect selling on rallies and a bias to the downside.
The Canadian Dollar sold off as Retail Sales unexpectedly fell in February. Speculative buyers went long the USDCAD in anticipation of another interest rate cut by the Bank of Canada. There is also a feeling that the Canadian economy is going to get worse before it gets better.
Another reason traders are looking at the downside in the Canadian Dollar is that many feel that crude oil is extremely over bought and vulnerable to a hard correction. The strength in the crude oil market has been artificially holding the Canadian Dollar higher. The past two weeks has been a mixture of bulls buying Canadian Dollars because of strong oil and bears selling the Canadian Dollar on weak economic fundamentals.
Now that it is clear that the Canadian economy is weakening, all it is going to take is a profit-taking break in crude oil to trigger a sharply higher rally in the USDCAD.
The AUDUSD rallied to new 24-year highs as inflation accelerated above 4% for the first time in 7 years. Traders are positioning themselves for another round of rate hikes by the Reserve Bank of Australia. The next central bank meeting is on May 6 so there is nothing to stand in the way of higher markets over the next week to 10 days.
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