Heavy Volume and Weekly Reversal Signals Start of U.S. Dollar Rally

By: Brewer Futures Group | Mon, Jun 8, 2009
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The right combination of fundamental and technical factors helped the U.S. Dollar surge to multi-week highs against most major currencies on Friday.

Fundamentally, the Dollar rally was triggered by a better than expected U.S. jobs report. The U.S. Non-Farm Payroll Report showed a loss of fewer jobs than forecast which brought confidence to traders that the U.S. was leading the world out of the recession.

This reaction was different than previous reactions where the Dollar broke on good news. This may be an indication that global traders feel the U.S. financial administrators finally got it right and have put the U.S. economy in strong position to recover well before the rest of the world.

Investors expressed confidence in the change in sentiment toward the Dollar by turning gains from earlier in the week into a cluster of weekly closing price reversals. All these markets have to do is follow-through this week in the direction of the reversal to ignite more selling pressure this week.

Based on the strength of the reversals, it looks as if the Dollar is poised to start a minimum 50% correction of its last break down.

The selling pressure in the EUR USD did serious damage to the chart and has put this pair in a position to post a weekly reversal down.

Friday's trading action took out a major 50% retracement price as well as four up trending Gann Angles, but the worst of the damage is yet to come as this pair is set to make a weekly closing price reversal down on a close under 1.4159.

Based on this developing chart pattern, this market has a chance to break to 1.3608 by June 11 - 12.

The combination of a break below a major 50% price at 1.6085 and last week's close at 1.6188 has put downside pressure on the GBP USD. Political uncertainty also contributed to the break in the Pound.

There was no surprise during the final hours of trading, so the reversal top is valid. Now all this market has to do to attract selling pressure this week to confirm last week's closing price reversal down.

The minimum downside target of this developing break in the British Pound is 1.5530.

A big shift in investor sentiment has encouraged Swiss Franc traders to repatriate funds to the U.S. Although there is strong upside action in the USD CHF on the daily chart, it's the weekly chart that is giving the strongest indication of the start of a short-covering rally.

The trend is down on the daily and weekly charts but the impending weekly closing price reversal bottom is indicating that this market has the potential to rally to 1.1165.

A close above 1.0668 will form a reversal bottom but it is going to take a confirmation rally this week to trigger the next rally to a major 50% level at 1.1165.

The uptrend in the USD JPY was confirmed Friday when this pair broke out to the upside over the last main swing top at 97.23. The next objective is 99.75. A move through this level will also penetrate a main trend top on the weekly chart. Given the upside momentum in the market, it looks like it should have no problem challenging the high for the year at 101.44.

A decrease in trader appetite for riskier assets triggered a profit-taking break in the highly speculative Australian and New Zealand Dollars. Last week the AUD USD reached a major retracement zone at .7928 to .8382 and stopped cold at a little more than the mid-point. The subsequent sell-off demonstrated how fundamental and technical factors can work together to initiate a top in the market.

Based on the weekly reversal down, all it is going to take it a follow-through break to the downside this week to confirm the reversal and trigger a hard break to at least .7255 over the next 2 to 3 weeks.

After hitting precisely the 50% retracement level of the .8215 to .4892 break at .6599, the NZD USD exhibited a sign of heavy selling pressure by closing lower for the week. This weekly reversal down needs to be confirmed by a follow-through break this week, but all indications are for the start of a 2 to 3 week correction to at least .5741.

Following an almost 90 day break from the high for the year in March, the USD CAD may have finally reached a short-term bottom. A huge downside objective was met last week when this pair tested a major retracement zone at 1.1059 to 1.0586. Sellers dried up in this zone triggering a weekly closing price reversal to the upside. Based on the current developing chart pattern, it looks as if this market is poised to retrace to at least 1.1879.

We've seen stops and starts in the Dollar throughout the year, but this time the intense volume supports the notion that the U.S. Dollar is ready for an explosive rally.



Brewer Futures Group

Author: Brewer Futures Group


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