Today’s Forex Analysis summary.
Negative European economic news spooked EUR USD traders on Friday, sending the market sharply lower and solidifying a loss for the week.
Bears were in control most of the day as a report from the Euro Zone showed that the economy had contracted at a faster pace than estimated by economists. Talk is circulating that the European Central Bank may have to cut interest rates below 1% and get aggressive with its application of quantitative easing.
The GBP USD closed lower for the week after posting a new move high at 1.5351. Technically, this weekly closing price reversal top is a sign of a possible major top.
The news this week was not all that positive for the U.K. economy either, as the Bank of England reported that the anticipated economic recovery would be slow and drawn out.
The USD CAD posted a weekly closing price reversal bottom. This is a potentially bullish signal which indicates the possible start of a 2 to 3 week rally. Based on the developing chart pattern, look for a minimum rally to 1.2268.
This current break was triggered earlier in the week when the Japanese Yen rallied as weak economic news in the U.S. triggered a profit-taking break in the equity markets. This action led to a reversal in the carry trade, a strategy in which traders borrow the lower yielding currency to invest in higher yielding assets.
Risk adverse Swiss Franc investors helped drive the USD CHF higher as the Dollar regained its status as a safe haven asset. Traders have become less optimistic about a quick recovery in the U.S. economy. Furthermore, weakness in the Euro versus the Swiss Franc is leading to speculation once again that the Swiss National Bank stands poised to intervene if necessary. This would be bullish for the USD CHF.
NZD USD traders finally woke up and realized that the state of the New Zealand economy does not support the current price level for the Kiwi. Traders have not been paying attention to the real economy but instead have been focusing on the �possible� recovery in the global economy.
The AUD USD broke sharply lower this week after posting a multi-month high at .7711 early in the week. Traders are rejecting risky currencies at this time because it appears the global economic recovery will be slower than estimated. Look for a short-term correction to .6977.
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