Short-Covering Leads Euro Higher

The short-covering rally which began on Wednesday continuedin the Euro overnight ahead of Germany’svote to approve the massive deal to save the common currency and keep in checkthe Euro Zone debt crisis.

The short-covering rally which began on Wednesday continuedin the Euro overnight ahead of Germany’svote to approve the massive deal to save the common currency and keep in checkthe Euro Zone debt crisis.

German lawmakers are expected to approve the recentlyproposed loan package which should be received by investors as a show ofsolidarity and a solid attempt to heal public finances. Germany isgoing to play a major role in the political and economic unification of the EuroZone so the approval of this historic aid package is most important amid thecurrent sell-off in the market.

After this week’s decision by Germanyto curb naked short selling triggered a wave of negative publicity, today’sapproval of the financial aid package by Europe’sbiggest economy will be a strong sign that it is genuinely concerned aboutbringing the Euro Zone nation’s together while showing its support for theEuro.

With a record amount of shorts in the Euro, the market gotcrowded leading to the current two-day short squeeze rally. The threat of anintervention by the European Central Bank also helped lead to jitters in themarketplace. Even if the ECB does not intervene, the mere threat of theintervention makes investors wary of holding too many short positions. With themain trend down, look for short traders to take advantage of the quick rise andbegin to slow down upside momentum by slowly reentering the market on the shortside.

Technically, this current closing price reversal patternusually triggers a 2 to 3 day rally. This part has been confirmed by theovernight action, however, the upside target is usually a 50% to 61.8%retracement of the last leg down. Based on the last range of 1.3342 to 1.2143,the retracement zone is pegged at 1.2742 to 1.2884.

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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