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

The EUR USD closed lower in New York but a late session short-covering rally helped the market regain much of its earlier loss.  Traders attributed the rally to a turnaround in the crude oil market and position evening ahead of tomorrow’s ECB interest rate announcement.

The European economy remains weak as retail sales and business investments remained on the low side of estimates.  Despite the weakening European economy, the ECB is expected to leave interest rates at 4.25%.  This rate was set in July when the ECB raised rates .25%.  

Expectations are for the ECB’s Trichet to remain hawkish in his mandate to drive inflation lower despite the recent slowdown in Europe.  The key will be whether there is a dissention in the vote between other ECB members and Trichet.  The ECB may begin to come under pressure after the rate announcement as many countries are set to review their monetary policies in the wake of the weakening European economies.  

There is some fear that the interest rate differential between the U.S. and the European economies is indicating a further acceleration to the downside in the EUR USD.  There may be a reversal to the upside in the EUR USD if traders begin to see a further deterioration in the U.S. economy.  Any more bearish U.S. economic news could trigger a short-covering rally. 

The USD JPY finished lower today as the U.S. stock market weakened and traders continued to support the Japanese economic stimulus package.  It is clear that Japanese investors are keeping the money home as the U.S. economy is still showing signs of weakness and the U.S. banking industry remains unstable.  Talk is getting stronger that the Bank of Japan is considering a rate cut to shake up the economy.  This decision may be difficult to believe as rates are already at 0.50%.  

The GBP USD continued to remain under pressure as traders await an interest rate announcement from the Bank of England today.  Traders expect the Bank of England to hold rates at 5% at this meeting, but pressure is mounting for the BoE to consider cutting rates by as much as 1.5% by December.  Today the Bank of Tokyo’s Halpenny announced that he expects the Bank of England to cut rates in October.  Longer-term the fundamentals are still supporting a further decline, but the continuing deterioration of the U.S. economy may slow down the rate of decline over the short-run.

The USD CHF rallied to a new high for the year, but weakened near the close on a weaker stock market and expectations the U.S. economy is expected to weaken further.  Some traders are citing the lower crude oil market as a sign the global economic weakness is spreading to the U.S. Instability in the U.S. credit markets is also another reason why traders are not allowing the USD CHF to run higher.   
 

The USD CAD fell sharply lower from a new high for the year as the Canadian central bank surprised traders by announcing the Canadian economy is “still close” to its production capacity.  The Bank of Canada also left interest rates at 3%, but the comment appears to have closed the door to any rate cut before the end of the year.  The slight recovery in crude oil also provided some support to the Canadian Dollar.
 
AUD USD remained under pressure from the Reserve Bank of Australia’s rate cut on September 2.  Lower commodity prices and the fear that the global economic slowdown will continue to pressure the Australian Dollar is also causing the selling pressure.  Traders will be focusing on commodity prices to see if there will be a short-covering rebound to help the Aussie recover some of its recent loss.  Some traders will be watching to see if the U.S. economy starts to show signs of further deterioration.  This may also stabilize the Aussie enough to also trigger a short-covering rally.
 
The NZD USD continues to weaken and is now in a position to test the August 2007 bottom at .6639.  At this time there are no signs that the economy is bottoming with lower commodity prices continuing to put the most downside pressure on this currency pair.  It looks as if the market is anticipating the Reserve Bank of New Zealand to follow the lead of Australia and cut rates at its next meeting.