Currency Values Hinge on Equity Risk

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (TheLFB-Forex) -- The talks of the euro being prone to speculative attacks over the ongoing debt and bailout debacle have not as yet been able to transpose themselves into mid- and long-term action. The mainstream talking heads are extolling the virtues of a break-up of the eurozone economy as if it could be something seen in the near term. In reality, nothing could be further from the truth, and those looking for a fundamental collapse of EUR valuations may just want to look at what is on the other side of a EUR/USD trade.

There was a late-session move that strengthened all major currencies (EUR, GBP, AUD, CAD, CHF, JPY) against the dollar, in-line with an equity trading session that saw risk being bought. The strength of correlation between EUR and S&P 500 is not allowing one asset class to move against the other, and when equity indices are bought or sold EUR/USD moves in the same direction.

The globalization of daily trade has created an investment arena that will not allow a separation of weighing equity risk against the dollar. Debt woes in the eurozone are probably no better or worse than in the U.S., and until the spreads in inter-bank borrowing and debt insurance narrow the attention will be on breaking headlines and reactionary automated algorithm trade.

Technical Review:

EUR/USD: Holding a trading range set at the beginning of Sept. 2011, with 1.3250 the swing point support area and 1.3950 the swing point resistance area. Daily chart simple moving averages are in play and will likely hold the 700-pips range in place.

GBP/USD has spent more time trading around the current levels than anywhere else over the last 13 years. The current 1.6000 valuation also held steady for a decade from Feb 1992 to Feb. 2002, and now looks likely to continue the pattern of trade that has 1.5550 the swing point support area and 1.6250 the swing point resistance area.

AUD/USD has held steady as a go-to currency pair for those looking for long-term interest rate appreciation rates, where interest is paid to hold AUD against the USD. However, now that the Reserve Bank of Australia has started to cut interest rates the speculative attacks on the currency may start to build. The pair is back into the September trading range that has 1.0000 the swing point support area and 1.0700 the swing point resistance area. A weekly chart close below either of those areas could signal a sustainable move.