European Union not the Euro May be the Issue

The Euro continued its slide on Tuesday and signs aredeveloping that indicate the problem is with the European Union and not theEuro. The market seems to be content with the weakness in the Euro.

The Euro continued its slide on Tuesday and signs aredeveloping that indicate the problem is with the European Union and not theEuro. The market seems to be content with the weakness in the Euro. It’s theinability of the European Union to act as a cohesive unit that makes tradersfeel that a breakup may be coming. Franceand Germanyare obviously upset at the turn of events and both feel in my opinion that itstime to walk away from the notion of one unified currency.

After ten years, it appears that both the Germans and theFrench have finally realized that they cannot afford to support the wildspending habits of the other Euro Zone countries. Although some of the weakercountries are taking pre-emptive steps to shore up their economies throughaustere financial measures, it may be a case of too little, too late.

Today’s announcement to ban naked short-selling by theGermans is clearly a sign of desperation. This goes back to what I was saying acouple of weeks ago when I said the European Union has no, and may have neverhad a plan to deal with the situation that is taking place at this time

The question is ……what is going to happen next? Will the EUannounce they are intervening to prop up the Euro? This usually never works.Shorts will eat up any fresh money pumped into the market. The only time anintervention works is when a central bank tries to drive its currency lowersince they control the printing press. If they don’t intervene then the EuropeanCentral Bank may slash interest rates to zero. This will also have a negativeeffect on the Euro since it will mean the ECB is expecting no growth in theEuro Zone economy.

Continuing concern over the Euro and worries over theviability of a single currency system pressured the EUR USD throughout the dayleading to a sharply lower close. Earlier in the trading session, the Eurorallied on optimism generated by the start of the distribution of financial aidto Greece.

Technically, the Euro confirmed Monday’s closing pricereversal bottom but the lack of follow-through to the upside and the sharpintraday sell-off helped drive the market through yesterday’s low at 1.2233.This action negated the reversal pattern.

The GBP USD finished lower but inside of yesterday’s range.This inside range is a sign of impending volatility. The British Pound isfalling in sympathy with the Euro and on concerns that new austere financialmeasures will pressure the economy. Talk is also circulating that the Bank ofEngland will use the poor economy as the reason to being buying governmentbonds once again. This action would put liquidity back into the financialsystem thereby pressuring the Sterling.

The weaker Euro helped to trigger a reversal to the upsidein the USD CHF. Earlier in the session this pair confirmed Monday’s closingprice reversal top. Upside momentum drove this pair through the reversal top at1.1446, thereby negating Monday’s reversal top. It will be interesting to seeif the Swiss National Bank intervenes after saying on Monday that it isprepared to take decisive action to defend its currency.

Falling equity markets helped to weaken the USD JPY. Tradersstarted selling riskier assets right before the mid-session for the safety ofthe lower yielding Japanese Yen. The trade under 92.41 indicates weakness and apossible break to the next support level at 91.61. A break through this levelcould trigger a massive break.

Lower demand for higher risk assets helped to drive the USDCAD higher on Tuesday. On Monday this market stopped at a 50% retracement levelat 1.0424. Early Tuesday morning, this pair tested retracement zone support at1.0273 to 1.0235. The subsequent turnaround and upside momentum indicates thatthe next rally is likely to drive this pair to at least 1.0498.

Falling U.S.equity prices pressured the AUD USD and NZD USD. Today’s sell-off took outMonday’s lows in both of these pairs indicating weakness. Downside momentum isbuilding in the Australian Dollar which could trigger an even further declineto the February bottom at .8577 over the near-term.

The New Zealand Dollar also traded weaker as the investors soldhigher yielding assets. Although the Kiwi is a little better than the Aussietoday, downside momentum is likely to accelerate which could take this pair tothe February low at .6806.

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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