Euro Stabilizes; Is the ECB Ready to Act?

After an extremely hard sell-off which began Monday, theEuro stabilized on Friday and actually finished higher for the day. With theway information has been distributed this week, who knows why the marketsettled higher.

After an extremely hard sell-off which began Monday, theEuro stabilized on Friday and actually finished higher for the day. With theway information has been distributed this week, who knows why the marketsettled higher. Technicians will claim oversold conditions but that reasoncould have been used since Tuesday. Fundamentalists may claim that there was adelayed reaction to Jean Claude Trichet’s comment on Thursday that “Greece will notdefault”. Maybe CNBC failed to play thevideo of unrest in the streets of Greece. In my opinion, the Eurostabilized on Friday because maybe someone saw the European Central Bankflinch.

As the Euro tumbled and the world watched the turmoil in thestreets of Greece,the ECB sat comfortably on its collective hands. The staunch posture of Germany wasnever so obvious until this week when it most likely was the main countrystanding in the way of a bonafide rescue effort of the Euro. Watching theevents unfold this week, I truly felt at times that Germany was taking pleasure at theway the events have turned out.

Despite attempts to calm investors and instill confidence inthe Euro, the ECB led by its President Trichet failed miserably to reverse thedecline and make investors feel good once again about holding on to the Euro.As the Euro collapsed and the fear of contagion gripped the Euro Zone, I couldonly remember images of the hawkish ECB that waited until the last possiblemoment to begin cutting interest rates in July 2008 when every major centralbank had already begun doing so.

The situation in the Euro Zone has backed the ECB into acorner and now the world is watching once again to see if it is ready to actwith clarity and conviction in an attempt to right the ship. Coming intoFriday’s session, the ECB has three choices; either restructure Greek loans,lower interest rates to zero or begin buying Greek bonds. At this point, it is going to take more thanjust a few reassuring lines from Trichet.

Whatever it took to stabilize the Euro on Friday, no onewill ever be certain, it may have been the way events unfolded this week in Greeceor it may have been a well placed phone call from Fed Chairman Bernanke. It mayhave been the beating Trichet received from investors after he said Greece wouldn’tdefault and that the ECB hadn’t discussed buying Greek bonds in the secondarymarket.

I am not certain of the cause, but I do have a feelingsomething caused the ECB to flinch. What Friday’s action is telling me is thata plan is being worked on. It may not be the greatest plan in the world, butsteps will be taken this week-end to attempt to fix the Euro. Don’t besurprised by an announcement over the week-end or early next week that the ECBwill get off its hands and invoke unconventional means to shore up 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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