Euro Soars as EU Moves to Restore Investor Confidence

The EUR USD is up nearly 1.50% this morning after theEuropean Union provided clarity to the markets with a plan to stabilize theEuro Zone economic region. The EU’s plan provides new financial aid worthnearly a trillion Dollars.

The EUR USD is up nearly 1.50% this morning after theEuropean Union provided clarity to the markets with a plan to stabilize theEuro Zone economic region. The EU’s plan provides new financial aid worthnearly a trillion Dollars. The new aid proposal which includes several keymeasures subject to parliamentary approval calls for the restructuring of debt,low interest loans and the purchase of government and private bonds.

The positive move by the European Union is driving up demandfor riskier assets this morning after a hard sell-off last week. According tofresh data released by the CFTC this week-end, new short positions were addedto the futures markets. This means that most of today’s move is short-coveringrather than fresh buying.

Technically, the last main range was 1.3360 to 1.2518. Thismade 1.2939 to 1.3038 a key short-term retracement area. This zone was testedand exceeded overnight which means the short-covering rally is normal and thereis nothing extraordinary going on except the size of the gain.

Without a closing price reversal formation on the charts, Iam still skeptical about the rally. This type of pattern usually means that acorrection is inevitable. This correction is going to be very important. Buyersare going to have to step in to help form a secondary higher bottom. If thebuyers remain shy, then look for the downtrend to resume. At this time, tradersshould realize that the main trend is still down. The size of the rally doesnot change the trend.

Continuing to weigh on traders’ minds are the problems in Europe. While on the surface, the newly proposed aidpackage looks and feels real, but the execution of the plan is the key and inmy opinion there are still execution risks that could take this market rightback down.

The GBP USD is enjoying a strong rally overnight triggeredby spillover buying from the Euro. Traders are also showing relief in thepossibility that the two major political parties – Labor and Conservative – areworking together to map a plan for a balanced budget despite the possibility ofa hung parliament.

Technically, the main range in the British Pound is 1.4474to 1.5523. This creates a retracement zone at 1.4998 to 1.5122. The lower endof this range was tested overnight. Look for weakness if this price fails tohold. If support can be established at this price, then look for a rally to the.618 level at 1.5122.

The strong rally in U.S. equity markets is helping todrive up the USD JPY. The strong rally is actually a combination of less demandfor lower yielding assets and the sale of 2 trillion Yen by the Bank of Japanlast week.

Technically, last night’s action helped reestablish supportat a 50% price at 91.61. Upside momentum helped drive this market through the.618 level at 92.41.

Stronger demand for higher risk assets driven by sharplyhigher crude oil and equities is helping to drive the USD CAD sharply lowerthis morning. Based on the short-term range of .9929 to 1.0738, the main downsidetarget was 1.0333 to 1.0238. This area was tested overnight, stopping the breakin the process. A break under the .618 price level at 1.0238 should trigger anacceleration to the downside.

The AUD USD is up sharply this morning in response to thesharply higher U.S.equity markets. This morning’s rally stopped at a 50% price level at .9047.Regaining and holding above this price could trigger a further rally to .9128.

The main trend remains down despite the rally. This makesthis market susceptible to a near-term correction back towards the low in aneffort to build a secondary higher bottom.

The NZD USD is in a strong position this morning. The firstreason for the rally is greater demand for higher yielding assets. The secondreason for the rally is speculation that the Reserve Bank of New Zealand willbegin hiking interest rates sooner than expected.

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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