Weekly Charts Indicate Dollar Could Struggle; Technical Factors Support Euro and British Pound
Looking at the upcoming week, technical factors are indicting the possibility that the Dollar will once again feel downside pressure. Traders have priced in an interest rate cut by the European Central Bank and the Bank of England so there should be no surprise in these markets. The key to the market’s direction will most likely be the U.S. Presidential election on Tuesday. Overnight trading indicates light volume and low volatility.
The European Central Bank is expected to cut its key interest rate this week. Traders are mixed as to whether it will be 25 or 50 basis points. The threat of a global recession expanding throughout the Euro Zone is a negative factor as well as the possibility of credit issues with Eastern European emerging markets. Technically, the EUR USD posted a higher close last week and completed a closing price reversal up. This chart pattern will be confirmed if the market can take out last week’s high.
Traders will be looking for the Bank of England to cut their key interest rate by 50 basis points on November 6. With the U.K. in a recession, any good news regarding housing, mortgages, employment and consumer demand will be greatly appreciated. Technically, the GBP USD is showing a sign of a bottom.
The USD JPY finished last week with a higher close after trading inside the previous week’s range. The Bank of Japan is keeping its eye on the Yen by threatening intervention. Japanese exports are hurting so the Dollar may be allowed to appreciate against the Yen. A strong stock market could increase the appetite for risk which could put more upside pressure on the USD JPY.
The USD CHF closed lower last week. The trend is still up on the daily chart, however. The close has the market in a position to challenge the last swing top at 1.1748. A strong uptrend has been developing since the news of the Swiss economy contraction and its exposure to Eastern European credit issues. Traders are concerned that any economic issues in the Euro Zone will affect the Swiss economy because of the number of links between Swiss Banks and Euro Zone businesses. The USD CHF may receive an additional boost if the Swiss Central Bank cuts rates this week along with the European Central Bank and the Bank of England.
The USD CAD made a higher high early in the week, but still closed lower. Bottoming action in the commodity markets is making the Canadian Dollar appear stronger. Technically, the closing price reversal top in the USD CAD could lead to follow through selling this week. Watch the commodity markets - especially crude oil- for direction this week. Traders are also factoring in the possibility of an interest rate cut by the Bank of Canada. This could slow help accelerate a decline in the USD CAD.
The AUD USD is finding support from the Asian market interest rate cuts. Traders are seeking the higher yielding assets of the Australian markets. A strong rally in stock markets this week could lead to an increase in risk appetite. The Reserve Bank of Australia has been supporting the Aussie Dollar on steep declines so strong support may have already been established. The firm close on the weekly chart is indicating more upside action today.
Technical factors may drive the NZD USD higher this week based on the closing price reversal bottom from last week. A rally through last week’s high is needed to confirm the bottom. Traders seeking a higher yield are flocking to this market. The only negative could the global recession. If traders begin to believe that the global recession will hurt New Zealand exports, then this market will weaken.
