EURO, YEN, AND DOLLAR DEVELOPMENTS
ECB EXPECTED TO RAISE RATES... This Thursday we have an interest rate decision from the European Central Bank. It is widely expected that it will increase the European rate at that meeting. It's likely that the recent bounce in the Euro is in anticipation of that expected rate increase. Chart 1 is provided in "candle-stick" format. You'll notice a strange candle in the Monday session. Such a candle is identified as a "doji." A doji candle tells us that a market is in transition and likely to change direction. A doji is identified by its body which resembles a horizontal line. [The body of a candle is the difference between the opening and the closing price]. A doji-candle tells us that the opening and the closing prices were essentially the same. The Japanese interpret this as a day when both bulls and bears are evenly matched. The value of a doji is that it provides a warning of a probable change of direction. The doji on Monday may also possibly be a "morning star". [In a morning star, the doji is preceded by a dark candle and followed by a white candle]. A morning star doji can only be seen at the bottom of a formation and is a potential buy-signal. We are given some confirmation of this prospect by an examination of the MACD, which appears ready to change direction. Still, the (Euro) remains below both the 50 and 200 day moving averages. We'll soon know if this really signals the beginning of a turn to the upside.
Chart 1
JAPANESE YEN IS BOUNCING... From the chart of the $XJY, clearly the Japanese Yen has been enjoying a rally in recent days. It's above the 50- day moving average and we're seeing upside confirmation in the MACD. Some of this rally is attributable to the Japanese economy which is now growing to the point that the Bank of Japan is beginning to speak of a rate increase. Higher interest rates support their currency and, inasmuch as the USA is thought to be nearing the end of its rate increases, that money may flow to currencies which could offer better growth opportunities (Chart 2).
Chart 2
U.S. DOLLAR MAY BE ROLLING OVER... The US Dollar index seems to be rolling over to the downside, a move that was illustrated by the big red candle on the chart of the Tuesday session. The USD is approaching a test of its 50-day moving average and the MACD appears to be rolling over . Any downturn in the dollar would most likely be accompanied by bounces in other currencies. Most of the recent strength has been seen in the Canadian Dollar and the Japanese yen. The Euro has been the weakest of the three, but may also be ripe for a rebound. We'll probably know by the end of the week. A weaker dollar would give a boost to most commodity markets and gold in particular (Chart 3).
Chart 3
.... Editor's Note: This article was written by Jeanette Schwarz Young who is a technical trader on the New York Board of Trade and a fan of candlestick charts.
