Euro Pares Gains; Investors worried about Long-Term

The Euro is up at the mid-session but trading well off itshigh. This was expected since the announcement by the European Union to injectclose to a trillion Dollars into the Euro Zone financial and economic systemtriggered a short-covering rally rather than attract new buying.

The Euro is up at the mid-session but trading well off itshigh. This was expected since the announcement by the European Union to injectclose to a trillion Dollars into the Euro Zone financial and economic systemtriggered a short-covering rally rather than attract new buying.

Traders are now looking at the move by the EU as ashort-term fix to a long-term problem. The arrangement by the EU looks morelike a panic move triggered by pressure from the global economic community. Thesize of the aid package itself was larger than any bailouts previouslyconcocted by other central banks including the U.S. Federal Reserve.

The very size of the amount of money proposed by the EU andthe subsequent reaction by the Euro brings into question whether the aidproposal is designed to save the Euro as a currency or increase the Euro’svalue. Although short-covering helped drive the market higher initially, thetrading action at the mid-session suggests that short-traders are stillconcerned about the underlying major problems in the Euro Zone.

While it is clear that the short-term fix proposed by the EUto buy the government debt of Portugal,Spain and Greece is supportive at this time,it isn’t clear what this aggressive proposal will do for the Euro region overthe long-term.

Today’s $1 Trillion rescue plan was able to move the Euroabout 2% overnight, but it failed to do anything to address the irresponsibledeficit spending habits of Portugal, Spain and Greece and any other peripheralEuro Zone nations which may face similar issues later on.

The lack of clarity by the European Union has been a majorconcern for investors throughout the entire Greek episode. This weekend’sproposal has triggered a similar response. Sure it is easy to see theshort-term ramifications, but what about the long-run. Doubts also arebeginning to surface about the execution of the plan. This sets up the Euro fora period of volatile trading.

Technically, the Euro stopped rallying after slightlyovershooting a .618 retracement level at 1.3038. With the Euro bottoming lastweek at 1.2518 and topping this morning at 1.3093, traders should look for apull-back into the 1.2805 to 1.2738 range. If the Euro is going to move higherthen fresh buyers will step in at this zone. A failure to do so will drive themarket to new lows.

The action by the EU sets up a classic battle between thegovernments of Europe and the hedge funds.Although the EU made a move which caught the markets by surprise overnight, thehedge funds still seem to be calling the shots. The battle lines have beendrawn at 1.2805 to 1.2738. Investorsshould know in a day or two whether the EU proposal will be given the benefitof the doubt or if it will go away with hardly even a whimper.

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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