The strong close in the September E-mini S&P 500 has put this market in a position to rally further with a cluster of Gann angles and a .618 retracement level the next potential upside target.

On Thursday the cluster will be formed at 1086.75 to 1088.00, an uptrending Gann angle/retracement level combination. The downtrending angle will fall between these two levels at 1087.75. This could be indicating that this market has more room to run to the upside tomorrow.

The September E-mini S&P 500 soared to the upside Wednesday morning boosted by strong economic data from Australia and China. Although the ADP employment outlook surprising missed analyst estimates, investors shrugged off the news. Thin trading conditions may have contributed to the rally. Many large traders and institutions have been on the sidelines this week due to Monday’s Labor Day holiday. In addition, other key market players have chosen to stand aside in front of Friday’s August U.S. Non-Farm

The strong rallies in the Euro and the three major risk-linked currencies finished sharply higher and near their highs while showing no signs of a letup into the close. Whether it was short-covering or fresh buying, investors celebrated good global economic news by driving the U.S. Dollar lower and most major markets higher.

Upside momentum is expected to continue overnight, but traders will have to face a decision about whether to keep up this robust pace so close to the U.S. Non-Farm Payrolls Report on Friday. In addition, investors get a chance to assess more U.S. economic data on Thursday including weekly initial claims, Factory Orders and Pending Home Sales.

The Euro surged to the upside overnight, taking out the last swing top at 1.2779 and changing the main trend to up on the daily chart. Based on the range of 1.3334 to 1.2587, the September Euro is now set up for a possible test of the retracement zone of this range at 1.2960 to 1.3049. A downtrending Gann angle from the 1.3334 top is at 1.2974, suggesting the formation of a resistance cluster at 1.2960 to 1.2974 today and 1.2954 to 1.2960 on Thursday.

The initial catalyst behind the surge in the Euro overnight was the bullish PMI news from China and the better than expected growth report from Australia. Both news pieces helped rally Asian stocks leading to greater demand for risk and subsequently the Euro.

News that the Euro Zone manufacturing recovery hit a six-month low failed to halt this morning’s advance. Overnight it was reported that the manufacturing purchasing managers’ index slowed to 55.1, with “moderated” growth both in output and new orders.

According to the report, the hardest hit country in the Euro Zone was Greece which is still trying to recover from its financial crisis from the Spring. Germany and France posted “strong growth”. The report also showed that the improvements were “still centered on Germany, the Netherlands and Austria”. The recovery was “comparatively modest” in Italy and Spain.

Although this report suggests that the region is cooling, the strength in Germany and France should be noted. The weaker countries are likely to bring up this fact at the next European Central Bank meeting on September 3. ECB members want to be assured that the Euro Region as a whole recovers at a similar pace so that the stronger countries do not dominate the weaker economies.

Despite the change in trend to the upside in the Euro, momentum must continue to remain strong to drive this market to the objective minimum objective of 1.2960 over the near-term.

The Dollar declined against the Euro and commodity-linked currencies throughout the New York session after U.S. manufacturing activity showed a surprise improvement last month. This news came unexpectedly and indicated that despite calls for a double-dip recession, there were identifiable areas of strength in the economy.

Wednesday’s down move in the Dollar began last night following the release of stronger economic data from Australia and China. Investor appetite for risk was whetted with the news, triggering a sharp rally in the Australian, New Zealand and Canadian Dollars.

Earlier this morning traders shrugged off a weaker than expected ADP employment report, signaling that the focus would be on growth. The ADP number suggested that Friday’s U.S. Non-Farm Payrolls Report will likely be in line with pre-report estimates of a 106K to 120K jobs lost and an increase in the Unemployment Rate to 9.6%.

Technically the September Euro changed the trend on the daily chart to up on the move through 1.2779. This sets up the strong possibility of a retracement to a major 50% level at 1.2960. Upside momentum has to continue on Thursday to keep this forecast in line. Some traders doubt that the rally was triggered by real buyers because of thin pre-report and pre-holiday trading.

The September Australian Dollar was a big mover on Thursday, posting a strong gain of over 2.00%. The rally also exceeded a retracement zone at .8995 to .9049. This move sets up a potential rally to a downtrending Gann angle at .9131.

Australian Bonds sold off following the report of a surge in Australian GDP by 1.2 percent. This was the most rapid pace in three years and led to call for an interest rate hike by the Reserve Bank of Australia at its next meeting on September 7.

The surge in the Australian economy also spilled over to the New Zealand Dollar, which remained in a downtrend, but was threatening to break out above the last swing top at .7191.

Finally, the September Canadian Dollar benefited from higher crude oil, a better outlook for the U.S. economy and appetite for risk. Despite the bullishness of Wednesday’s trade, look for the Canadian Dollar to continue to straddle 50% of the main range of 1.0064 to .9208 at .9636.

The strong closes in all the major foreign currencies indicates that there may be a follow-through rally on Thursday, but there is still doubt among some traders whether the rallies today in the majors were real buying or weak shorts getting driven out of the market.