- Daily Forex Commentary -

March 29, 2010 (FinancialWire) (Investrend Information Syndicate) — As of 12:00 PM EDT today, the PowerShares DB US Dollar Index Bullish Fund (NYSE: UUP) is down 0.29% on volume of 1,000,000 shares, while the PowerShares DB US Dollar Index Bearish Fund (NYSE: UDN) is up 0.38% on volume of 118,000 shares. FinancialWire(tm) contributor, Brewer Investment Group, issued some commentary going into today regarding the currency markets, providing some pre-market insight: 

The EUR USD erased some of its weekly loss as weak shorts pared their positions in the wake of positive developments out of the European Union summit. Early Friday it was announced that France and German threw their support behind a modified agreement to allow the International Monetary Fund to provide bailout money to Greece if needed.

This news underpinned the market from the start of the New York session. Friday’s rally approached the old bottom at 1.3440 but failed to overcome this level. Regaining this price could trigger an acceleration to the upside if traders who shorted on the break through this bottom decide to aggressively cover their losing positions.

Although this event triggered a short-covering rally in the Euro, traders approached the news with caution. The initial reaction to the upside means that tensions have eased and fears have calmed now that it appears Greece’s sovereign debt problems will not spread to other Euro Zone nations after all. Most traders now believe that this deal is enough to stop the slide in the Euro, but not enough to turn the bearish trend around.

Earlier in the week, such a bailout deal looked pretty remote. The Euro was falling, driven lower by comments from European Central Bank President Trichet who said that a bailout from the International Monetary Fund would be bad for the Euro. His feeling was that help from the IMF would make the EU look weak and unable to take care of its own financial problems. Throughout the week, traders felt that a deal was far from being made.

Traders became more optimistic about the prospects of a deal late in the week when a plan endorsed by France and Germany was agreed upon. The new deal calls for a mix of IMF and bilateral loans. Afterwards, Trichet embraced the proposal saying that he was "extraordinarily happy that governments of the Euro area found out a workable solution." His statement amounted to an about face from a statement earlier in the week when he said that an IMF role in the funding of a rescue plan for Greece would be "very, very bad."

Trichet’s acceptance of the plan was mostly responsible for Friday’s short-covering rally. His acceptance of the proposal helped ease concerns that Euro Zone officials would be unable to resolve the fiscal problems in Greece.

Whether a turnaround in the Euro marks a major bottom is really up to the hedge funds at this time. Recent data suggests that hedge funds and large speculators remain net short the Euro in a big way. Until these large traders are forced to cover shorts or turn into buyers, expectations for the current rally will be limited. The whole process of debating about financial aid for Greece has shaken investor confidence in the entire Euro Region.

The GBP USD traded better to end the week in a knee-jerk reaction to the rise in the Euro. The inability to break to a new low for the week helped to contribute to the rally. Like the Euro, this action is only indicative of short-covering and not a potential change in trend. Neither a closing price reversal bottom nor a main trend top breakout is taking place, meaning that the trend is still decisively lower. Negative fundamentals such as political uncertainty, the threat of a credit rating cut and a "bumpy" recovery are helping to limit gains.

The USD JPY finished lower after attempting to take out Thursday’s high at 92.95 and failing. The turnaround in the U.S. equity markets from up to down also contributed to the weakness. Overbought conditions could drive this market back down between 91.62 – 90.85 if the stock market continues to weaken.

Mixed demand for higher yielding assets helped to boost the USD CAD. Higher gold and weaker crude oil was a sign of uncertainty. This news triggered a continuation of the short-covering rally which began a week ago. The daily chart indicates that there is room to the upside with 1.0369 to 1.0442 the next upside target.

The stronger Euro helped to pressure the USD CHF. Following a rally inside a retracement zone at 1.0703 to 1.0749, this pair found sellers who are now trying to work this market lower into another retracement zone at 1.0628 to 1.0600. The stronger the Euro gets, the less likely the Swiss National Bank will intervene.

Weakening U.S. equity markets and overbought conditions helped to push the AUD USD lower. Based on the main range of .8577 to .9251, traders should watch for a correction back to the retracement zone at .8914 to .8834.

The NZD USD closed lower after an earlier attempt to rally failed. This market traded inside of yesterday’s range indicating impending volatility. The daily chart indicates that a break to .6992 to .6948 is likely over the near-term. Friday’s rally in the Euro appears to be bullish only for the European currencies rather than the Asian and Pacific Rim markets.

Source: Courtesy of Brewer FX / Brewer Investment Group, LLC

For more information, content and/or a preferred introduction to Brewer Investment Group, LLC and/or Brewer Futures Group, LLC, contact Investrend Communications via resources@investrend.com with “Brewer” in the subject line.

Brewer Futures Group advises that futures and options trading involves substantial risk of loss and is not suitable for every investor. The valuation of futures and options may fluctuate, and, as a result, clients may lose more than their original investment. The impact of seasonal and geopolitical events is already factored into market prices. Prices in the underlying cash or physical markets do not necessarily move in tandem with futures and options prices. In no event should the content of this correspondence be construed as an express or implied promise, guarantee or implication by or from Brewer Futures Group, LLC, Brewer Investment Group, LLC, or their subsidiaries and affiliates that you will profit or that losses can or will be limited in any manner whatsoever. Loss-limiting strategies such as stop loss orders may not be effective because market conditions may make it impossible to execute such orders. Likewise, strategies using combinations of options and/or futures positions such as "spread" or "straddle" trades may be just as risky as simple long and short positions. Past results are no indication of future performance.

Information provided in the above article is intended solely for informational purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.

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