The failure by the EURUSD to punch through 1.5904 to a new all-time high and the reversal down on Monday weighed heavily on the market as longs liquidated positions. The current chart is suggesting a developing double-top formation. A trade through 1.534 will confirm this formation. If the market goes through 1.534, the main trend turns to down on the daily chart. Until this occurs, consider this down move position evening ahead of the U.S. unemployment report.
One of the reasons for the strength in the Dollar was the vote of confidence given to the credit markets with the announcement of Lehman's raising of $19 billion. In order to really generate strength and trigger upside momentum, the unemployment report has to be bullish.
The USDCHF rallied as traders returned to the U.S. equity markets in a big way. The charts indicate 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 .9871 and .9635.
Despite finishing the first quarter with its biggest gain since September 1999, the Japanese Yen was hit hard on Tuesday as the U.S. stock markets broke out to the upside. In addition to the strong stock market, a Bank of Japan survey showed business confidence fell to a four-year low in March.
The USDJPY main trend turned up on the daily chart on the move through 101.04. The first upside objective of this rally was met at 102.17, the next upside target is 103.69. A new main bottom has been formed at .9854.
A new main top was formed in the GBPUSD at 2.1093. The main downtrend was reaffirmed on the break through 1.9735. The next downside target is 1.9660. Look for a selling opportunity on a rally back to 2.0033.
Fundamentally, lower UK housing prices are putting pressure on the Bank of England to cut rates next week. Perceptions are that the worldwide credit squeeze is hurting the UK economy. UK financial markets are forecasting a prolonged period of slower growth. The fundamentals along with the downtrend suggest lower markets to follow.
Buyers came in early to drive the USDCAD higher on Tuesday mostly in reaction to lower commodity prices. The follow-through break in the Canadian Dollar was also attributed to the biggest quarterly loss against the USD in more than a year. The up move was expected to take the pair to the main top at 1.038. Weak commodity prices have driven down the Canadian Dollar. The late session turnaround in Crude Oil forced long USDCAD traders to take profits and stand aside.
The longer-term trend supports a stronger U.S. Dollar. The slow down in the U.S. economy is expected to hurt the Canadian, as the U.S is Canada's largest export market. The developing top in the commodities market is also likely to help rally the Dollar against the Loonie. Although GDP was up in Canada, the slow down in exports is likely to trigger a rate cut by the Bank of Canada.
The NZD fell sharply in a follow-through break after a report on Monday showed that business confidence dropped to a 17-year low in March. There is now a threat that the developing weak economy will force the Reserve Bank of New Zealand to lower interest rates. The slow down in growth is bearish for the NZDUSD.
A second lower top has been formed at .8103. The first downside objective was met at .7799. The next level is .7700. The main trend is down so look to sell rallies. The first area to watch for a sell is .8003.
The Aussie Dollar fell as bearish comments from the Royal Bank of Australia signaled a halt to its aggressive rate hiking campaign. The official statement cited a moderation in demand growth that will take pressure off inflation. Most of the recent rally was being caused by the widening rate differential between the AUD and the USD. With interest rates expected to remain steady, and the confidence returning to U.S. markets, look for more downside pressure to develop as longs unwind positions.
A lower main top was formed at .9254. The charts indicate a break through .8952 could accelerate a break to the downside. The next two-downside targets are .9005 and .8888. With the main trend down, look to sell a rally back to .8454.
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