August 13, 2009

Early this morning news out of the Euro Zone sent the EUR USD higher. Euro Zone GDP was better than expected buoyed by surprise increases from Germany and France. This news spilled over to the other currencies as appetite for risk returned to the market. The U.S. Dollar was weak versus all major currencies today.

Technically the Euro could still attract selling pressure. The current two-day rally has not taken out any significant tops to signal strong buying. The charts indicate that this market has completed a technical retracement. A lower close tomorrow will indicate that last week's closing price reversal top is currently carrying more weight than the surprise news from the Euro Zone this morning. Based on the main range of 1.4447 to 1.4086, this pair found fresh selling at the .618 price at .14309.

A similar situation is developing in the GBP USD. Last week's surprise announcement by the Bank of England to expand its quantitative easing program remains the key reason why the British Pound should continue to feel downside pressure.

Technically the GBP USD fell short of completing a 50% retracement of the break from last week's top. Sellers did come in early but it is going to take a follow-through break tomorrow to send this pair on a path to lower prices. If buyers are still present then they may drive this market to 1.6716 before the selling starts. Either way you look at it this current two-day rally looks more like short-covering rather than new buying.

The USD CAD gave back more of its gains from earlier in the week because of the renewed strength in the U.S. equity and crude oil markets. This market found support at a .618 retracement level at 1.0800 and close over a 50% retracement level at 1.0853. These are both strong indications that buyers stepped in following the two-day break. A follow-through to the upside on Friday will be a strong signal that a major bottom was reached last week.

The strong rally in the U.S. equity markets helped increase demand for the higher yielding AUD USD and NZD USD. Although both of these markets rallied, they still failed to take out their respective highs for the year at .8470 and .6817.

Tomorrow will be a key day for both of these currency pairs. If today's churning in the equity markets following an initial surge to the upside is any indication, then weakness in the stock market is likely to trigger the start of a break in the Australian and New Zealand Dollars.