Today�s Forex Analysis Summary
Investor need for more risky assets continued to support the Euro this afternoon. In addition, the U.S. Dollar extended its losses following the release of the Fed’s FOMC minutes. Traders reacted to the minutes which showed Fed members were considering increasing its purchase of mortgages and government debt. This act would debase the Dollar further and may lead to inflation if done incorrectly. This was the main reason for the late session selling pressure.
British Pound investors continued to bet heavily on a quick recovery in the U.K. economy by sending the currency soaring to a multi-month high. Strong rallies in global equity markets helped push this currency even higher as trader appetite for higher paying assets helped increase trader optimism that a global economic recovery will come sooner rather than later.
A report showing that Canadian inflation was in line with expectations helped to break the USD CAD on Wednesday. Traders were concerned that a drop in inflation would trigger the need for the Bank of Canada to apply quantitative easing in an effort to revive the economy.
The USD JPY broke sharply lower on Wednesday despite a report showing the Japanese economy contracted at an annualized rate of 15% during the first quarter. This number was better than economists� forecast which may be one reason for price improvement today.
The main trend remains down for the USD CHF. A new swing top was also formed at 1.1265, indicating developing weakness as the lower-top, lower-bottom formation continues. The trade through the last swing bottom at 1.0976 reaffirms the current downtrend. Risk-takers are controlling the market at this time. Frustrated Swiss Franc investors are no longer satisfied with the low returns in the U.S. and are seeking higher yielding elsewhere.
The strong rally in the AUD USD market puts the market in a position to challenge the major 50% price at .7928, but a late session break in equity markets could be indicating a short-term top may be forming on the daily chart.
The NZD USD tried to take out the last swing top at .6126 but failed at .6112. This currency pair continues to lag behind the rest of the currency-based Forex markets. This reflects the notion that the New Zealand economy still remains too weak to support prices at current levels. Even if this pair does penetrate .6126, it will most likely be short-covering which drives it higher rather than new buying.
Since Forex traders seem to be ignoring economic reports at this time, the key indicator will be the equity markets. Weaker stock markets will trigger risk aversion which will lead to a stronger Dollar. Until we see the start of a sharp correction in the equity markets that professional investors have been waiting for, continue to look for the Dollar to weaken. Today�s late reversal to the downside in the U.S. equity markets could lead to follow-through selling tomorrow. Watch the overnight action to see if investors are becoming more risk averse.
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