Euro Plunges to 12-Month Low

Traders expressed their dissatisfaction with the recentbailout package between Greece,the European Union and the International Monetary Fund by driving the Euro to anew 12-month low overnight.

Traders expressed their dissatisfaction with the recentbailout package between Greece,the European Union and the International Monetary Fund by driving the Euro to anew 12-month low overnight.

According to reports, the parliaments of Euro Zone nationsmust approve the release of the funds before the aid package will exchangehands. In the meantime, Greecewill try to implement its newly agreed upon austere financial cuts amid civilunrest. At this time, despite agreeing to the bailout package, it appears thatthe implementation of the plan may be difficult. Aggressive shorts are seizingthe opportunity to pressure the Euro further.

The bailout agreement which was highly expected failed torestore confidence to the Euro, most likely because speculators still believethe sovereign debt problems in the Euro Zone are likely to spread to Spain, Portugaland Ireland.

Each recent rally in the Euro has been met by more sellingpressure which has triggered a break to a new low for the year. This pattern isexpected to continue as the direction of the Euro is clearly in the hands ofthe shorts. Recently released Commodity Futures Trading Commission Commitmentof Traders data shows that hedge funds and other large speculators are dictatingthe direction of this market. The report shows that these large tradersincreased net wagers on a Euro drop by 25% to 89,013 contracts in the weekended April 27th.

Clearly if large traders believed that the bailout packagewas going to save the Euro, the number of net shorts would have decreased. Theincrease in the number of net shorts indicates that bearish traders are gainingconfidence in the possible demise of the Euro. Last week the S&P Corp.downgraded the debt rating of Spainand Portugal.This action helped throw fuel on the fire as it no doubt confirmed to thebearish traders that they were trading the Euro from the right side.

Although the Greecebailout package may be providing the nation with some breathing room, themarket is saying that traders remain cautious. It is easy for the policymakersto require beaten countries like Greece to agree to more austerefinancial measures, but it is another thing to make them follow the new rules.

The Euro is also under pressure from traders who simplybelieve the Euro Zone is going to be mired in this financial crisis for sometime. In addition to expectations of contagion in the region, some bearishtraders are increasing bets that the European Central Bank will not be able toraise interest rates during a time period when most major industrial nationsare considering rate hikes. Other traders believe that the situation in theEuro region will grow to the point where credit markets become locked up muchlike they were during the height of the Lehman debacle. Putting everythingtogether, it looks as if the situation is likely to worsen which means downsidepressure will remain on the Euro.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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