The Forex Pattern Price Time Report - All Forex - Evening Session

The EUR USD rallied early Wednesday as traders reduced speculation the ECB would cut rate before the end of the year.  Comments from ECB Executive Board Member Axel Weber put an end to the talk that the ECB was considering a rate reduction.  In keeping with the ECB mandate to get inflation down to an acceptable 2.5% level, Weber told Bloomberg News that any talk of an interest rate cut was premature.  Axel also hinted that the ECB would be watching data until the end of the year before reaching a conclusion.  He did not rule out another round of tightening.

Some traders interpreted Weber’s comments as hawkish, however, not enough to trigger aggressive buying.  Others thought the comments were right in line with the usual ECB hawkish tone.  It looks as if this pair has reached a balance point with both the ECB and Fed considering rate hikes.

Although Weber’s comments provided support throughout the day, a stronger than expected U.S. Durable Goods Report reduced the Euro’s gains.  Higher crude oil also softened the Dollar.  Traders will be watching crude oil all weekend as hurricane Gustav is expected to threaten a major refinery area.  This could trigger another short-covering rally in the Euro. Second Quarter GDP will be released tomorrow.  Estimates are for an increase.  If there is a surprise this it will most likely be in this report. Everyone has been talking about a global economic slowdown so traders should watch to see if this report confirms the slowdown has reached our shores.

There may be a choppy two-sided trade tomorrow.  A rally in crude oil would support the EUR USD, but a friendly GDP could curtail gains.

The USD JPY traded in a wide range on Wednesday.  The initial reaction was down as traders were looking for a lower opening in the stock market.  After the release of the U.S. Durable Goods report, the stock market rallied as shorts covered their positions.  As the stock market grew stronger throughout the day, the USD JPY firmed as traders increased there appetite for risk.  A bullish GDP report on Thursday may trigger another rally in stocks and another round of aggressive buying in this pair.  A breakout over 109.94 would be bullish with 110.65 the next upside target.  A weaker than expected GDP number is likely to put pressure on the stock market which is likely to increase selling in the USD JPY.  

The GBP USD fell to a new low for the year as the better than expected Durable Goods Report was interpreted as leading the Fed closer to an interest rate hike.  This brought downside pressure to the Pound.  Traders piled on the short side as there is growing concern the Bank of England will reduce interest rates by as much as 1.5% by the end of the year.  The deepening housing slump is expected to continue to put downside pressure on the Pound.   Weak U.S. economic damage on Thursday may trigger some light short-covering, but this pair is far from turning the trend to up.

The USD CHF fell early in the session as the U.S. stock markets were expected to fall along with Asian and European stock markets.  The better than expected U.S. Durable Goods Report triggered early morning short-covering in the equities which turned into stronger buying throughout the day.  The USD CHF rallied from the lows as firmed as traders increased their need for higher-yielding U.S. assets.  Although the turnaround was strong, this pair was not strong enough to close over 1.1000.  A stronger than expected GDP figure is likely to bring more buyers to stocks which will trigger a possible test of 1.1107 in the USD CHF.  A weaker figure will attract selling pressure all the way down to 1.0865.

The USD CAD posted a modest loss as crude oil strengthened throughout the day.  The Canadian economy relies heavily on crude oil.  The loss on Wednesday was small relative to the move in crude as some traders believe Tuesday’s move may have been overdone.  The hurricane in the Gulf of Mexico is expected to threatened major refineries along the U.S. gulf coast.  This area produces about 42% of the U.S. gasoline. Since higher crude oil is expected, look for more weakness in the USD CAD with a move to 1.3051 to 1.0261 likely.

The AUD USD traded sideways most of the day as traders await next week’s interest rate decision by the Reserve Bank of Australia.  At the meeting on September 2 the RBA is expected to cut rates by .25% for the first time in 12 years. Some traders believe this rate reduction is already in the market which means the AUD USD is close to a bottom.  Sharply higher crude oil could spillover to other commodity markets.  This would be supportive to the Aussie especially if gold moves substantially higher.

The NZD USD is still holding the low for the month at .6823.  This pair traded firm throughout the day in anticipation of a short-covering rally fueled by higher commodity prices.  Traders are watching to see if a strong rally in crude leads to higher gold. Currently, the best indication of a change in trend to up will occur on a breakout over .7215.