Euro Waiting For ECB to Step in and Provide Support

The EUR USD plunged sharply lower on Thursday breakingthrough 1.26 and approaching dangerously close to the October 2008 bottom at1.2329. There may be a technical bounce if this area is tested, but longer-termswing charts project a possible break to 1.14.

The EUR USD plunged sharply lower on Thursday breakingthrough 1.26 and approaching dangerously close to the October 2008 bottom at1.2329. There may be a technical bounce if this area is tested, but longer-termswing charts project a possible break to 1.14.

Early Thursday morning the Greek government passed its newcost cutting measures, making Greeceeligible for the bailout money offered by the European Central Bank and theInternational Monetary Fund. The Euro continued to weaken however, as bearishtraders focused their attention on similar fiscal problems developing in Spain and Portugal.

This morning the ECB voted to leave interest rates unchangedat 1.0%. It also added that rates would remain low with financial uncertaintystill expected to be a draw on the Euro Zone economy. Because so much money isbeing set aside to bailout Greeceand additional funds may be needed to support the economies of Spain and Portugal, the ECB cannot afford atthis point to begin raising interest rates without risking a possibledouble-dip recession.

ECB President Jean Claude Trichet offered no solid relief toinvestors in his post-meeting press conference. Many traders had expected himto make a much stronger statement regarding the Euro Zone problems but his talkfailed to instill any confidence in investors. In fact, the Euro continued tobreak sharply after his press conference.

Major players wanted to hear Trichet address the possibilitythat the ECB was considering buying government bonds or diverting financialstimulus from other parts of the economy to address the fiscal needs of thestruggling nations. During his talk this matter never came up. Throughouttoday’s massive sell-off, traders were looking for and analysts were callingfor the ECB to step in and start buying government bonds.

Trichet also said there would be no default of Greek bonds.Traders however continued to punish the Greek capital markets after thisstatement. This sent a clear signal that the Greek government, the ECB or theIMF did not have a grasp of the situation. In fact it reaffirmed that bearishtraders were in charge. What is known at this time is that hedge funds andlarge speculators are committed to the short-side of the market and notexpected to lighten up because the fundamentals clearly support a weakercurrency.

Analysts continue to feel that the worst is yet to come asthe capital markets in the Euro Zone continue to run out of control. Many feelthat the ECB has been behind the curve and that the ECB hasn’t acted fastenough to stem the Euro’s downfall. Unless the central bank steps in to providestimulus or to buy Greek bonds, look for the same weakness in the currency tocontinue tomorrow.

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

Disclainer: