Using key words and phrases such as volatility very concerned dramatic excessive and bad both the Bank of Japan and European Central Bank tried to calm down the recent explosive moves in the Euro and the Yen. Although there were some temporary breaks throughout the U.S. session, it was not enough to trigger liquidation or a topping signal. Chatter is surfacing that both may use intervention to gain control of a situation that they perceive as unhealthy to global markets. Additional talk is going around saying that the G-7 is considering a coordinated intervention. It looks as if this intervention is likely to take place. The question is when. If they want the element of surprise on their side, then the U.S. holiday on March 21 is likely to be the day unless the U.S. markets crumble then.
Recent economic reports cite inflation in the Euro zone as preventing the ECB from cutting rates. This makes an intervention their best alternative. Exports, however, are expected to look dismal if something is not done soon. Overall, the markets around the world are reacting the way they should. Most are following a trend that is being supported by a poor U.S. economy, a credit crunch and market turmoil. The fundamentals seem simple at this time. The Yen and Swiss are being supported because they are being perceived as safe havens, the Euro is being supported because it is the best alternative to a weak Dollar, and the AUD and NZD are being supported because of the wide interest rate differential.
Although daily ranges may be expanding, the markets are not creating any two-sided volatility. In my opinion, the central banks should leave their currencies alone and let the market forces dictate the strength and direction of the trends. Doing this will let the trends come to a natural end when the U.S. cleans up its mess.
EURUSD: There was no let up in the EUR rally on Friday as once again the market made a new high and a new high close. Unless acted upon by some unexpected or excessive outside force, the uptrend is in no danger of reversing. The main trend line support is at 1.552. This support would have to be violated decisively by a hard break or two consecutive closes under it. Look for the main trend to continue higher. Stay away from the short side until you get a definite change in trend signal
GBPUSD: The fundamentals support strength in the GBP over the USD. The weak close did nothing to the trend and looks as if it is technical rather than fundamental. The interest rate spread is still favoring the Pound. The BoE is expected to hold rates steady over the near term, as the economic news has been inflationary lately. The Fed is expected to cut interest rates on the 18th and that will widen the interest rate spread and make the Pound even more attractive next week. Technically the GBP reached resistance inside of a major retracement zone and attracted some selling. Support is at 2.008; however, the trend does not turn down unless 1.972 is violated. Look to buy dips as long as the trend is up. The upside target this week is 2.4064.
USDJPY: This market was down last week as the USDJPY reached a
12 Â½-year low. Traders flocked to the Yen as a means of safety following concerns over liquidity and poor U.S. economic data. This pair might have been down a lot more if it were not for the threat of an intervention by the BoJ. Lately they have been issuing verbal comments on the volatility in this market, but have not given any hint toward intervening. The main trend is down. The trend turns up on a trade through 103.11. Currently the market is trading inside of a down trending channel that is controlling the short-term direction.
USDCHF: The USDCHF reached parity for the first time in history as traders and investors sought the safety of the Swiss Franc over the Dollar. As long as traders remain adverse to current market conditions, then look for support to continue to erode. The main trend is down and will only change to up on a trade through 1.035. Down trending resistance, which has been holding the market down, is at 1.019.
USDCAD: The USDCAD is not attracting much interest in either direction, as traders believe that the two countries' economies are so closely linked that this pair is at a fair-value. The rally in Gold and Crude Oil was supportive to the Canadian early Friday, but this support disappeared throughout the rest of the selling session. Oil, Gold and Wheat would have to have an extreme breakout rally in order to overcome the fear of the poor U.S. economic conditions spilling over into Canada. Continue to monitor the health of the U.S. economy for short-term direction. 1.00 is pegged as resistance and .9710 support.
AUDUSD: Interest rate differential traders love the AUD over the USD. With the Fed expected to cut rates between 50 and 100 basis points look for interest in the AUD to continue to drive this market to new all time highs. Strong Gold and Wheat markets are also supportive. The main trend is up, but traders backed off buying near this level following a test on Friday. Look to buy a pull back to .9322 if given the opportunity for the next rally through the all-time high at 94.96. The trend remains up unless .9147 is violated.
NZDUSD: The recent rally stopped short of making a new all time high on light trading. Look to buy a pull back at .8044 if given the opportunity. Strong Gold and Wheat market are supportive as well as a favorable interest rate differential.
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