The Euro continued its assault on the USD with a sharply higher rally as traders anticipate the Fed cutting rates while the ECB holds rates steady. The attractiveness of the interest rate differential is the driving force behind this rally. The rise in German business confidence and the fall in U.S. durable goods tell the whole story. As long as the Euro Zone continues to post good numbers while the U.S. economy struggles, expect the EURUSD to continue to move higher.
If the rally continues at the current three day pace, then expect talk of intervention to surface once again. It seems the ECB does not mind the gains in the Euro; it is the volatility that they are concerned about. In addition, any sign of a slow down in Euro Zone exports will start to become a concern. Until these things happen, the ECB is going to maintain its mission to control inflation by leaving interest rates alone.
The ECB's President Trichet helped boost the Euro rally when he testified to the European Union lawmakers that high interest rates would help control inflation. This type of comment gives confidence to long traders who want to ride the trend.
Technically, the EURUSD blew through the key retracement area starting at 1.56. Aggressive sellers did not surface at this area as suggested in yesterday's comments. The market is now poised for a test of the contract high at 1.5904. Support now moves up to 1.568 to 1.562.
Final GDP, Chain Deflator, and Initial Claims all are reported at 8:30 A.M. EST. The trend is up in initial claims and is not expected to stop at this time. If there is going to be a surprise, it will be in the initial claims.
GBPUSD rallied on Wednesday in reaction to the weaker U.S. fundamentals. The rally took the market to its first objective at 2.006. Trading stalled at this level as traders opted to take profits. Regaining 2.006 on Thursday will set up a further rally to 2.014. Despite the rally, the trend remains down, as traders are concerned about UK banks and uncertain about the direction the BoE is going to take on interest rates at its next meeting. Negative comments from the BoE stating it expects the Pound to decline as economic growth slows weighed on the pair. The new support is at 1.534.
The decline in the U.S. equity market put pressure on the USDJPY. Traders who bought this pair last week decided to lighten up positions as weak U.S. economic data put pressure on stocks. Near term support is at 98.37 to 97.75. Todayâ€™s reports will be critical to U.S. equity markets. A strong rally will lead to a new round of selling in the Yen.
USDCHF fell on the decline in U.S. stocks. Today's reports will dictate the short-term direction of the market. Technically, this pair has traded down into a retracement zone at .9948 to .9877. Breaking this support level indicates a potential test of the all-time low at .9647. The main trend is down and will turn up on a trade through 1.025.
News that the BoC is expected to cut rates by 50 bp at its next meeting helped the Dollar on Wednesday against the CAD. Signs that the U.S. economic slump is worsening is causing traders to think that it will drag down the Canadian economy. Small business confidence is also down. The Canadian economy is commodity driven. Strong rallies in wheat, gold and crude may provide short-term support. Technically, the new main top is 1.03 followed by 1.038. On the downside, support has been established at 1.000 and .9987.
The AUDUSD rallied into a resistance zone at .9211 - .9272. The market will have to overtake this resistance to drive higher to challenge the all-time high. If selling comes in at current levels, then look for a pull back to .9096. Fundamentally, if the U.S. cuts rates, then the rate differential will widen between the Dollar and the Aussie. Traders are currently betting heavily that this will occur by the end of April. Australian exports also gained on higher gold prices. Overall, the strong Australian economy is supportive to this current rally. Traders seeking a higher yield bought NZD. The interest rate differential between the U.S. and New Zealand is about 6 percent making the NZD very attractive. Technically, the market ran into resistance at .8081. Look for a possible pullback to .7983 before new buyers return. Regaining .8081 and establishing support at this level is likely to help this market make another run at new all time highs.
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