Inability to Hold 1.20 weakens Euro into Close

The Dollar rose against the Euro late in the trading sessionafter the release of the Fed’s Beige Book. The business survey showed subdued U.S.economic growth which led speculators to believe the Fed won’t be raisinginterest rates soon despite what investors had earlier interpreted fromChairman Bernanke’s comments.

The Dollar rose against the Euro late in the trading sessionafter the release of the Fed’s Beige Book. The business survey showed subdued U.S.economic growth which led speculators to believe the Fed won’t be raisinginterest rates soon despite what investors had earlier interpreted fromChairman Bernanke’s comments.

Some traders also attributed the break to position eveningahead of the European Central Bank’s policy meeting on Thursday. Although theECB is expected to leave interest rates unchanged, investors are worried aboutits statement and the post-meeting comments from ECB President Trichet. Thestatement is expected to contain bearish talk about the near-term growth of theEuro Zone economy. Trichet is expected, however, to sound more upbeat as hetries to unite the Euro Zone nations.

From a technical perspective, the inability to hold abovethe 1.20 psychological support encouraged weak longs to throw in the towel,triggering a hard break into the close.

Stronger demand for higher risk assets and slight optimismabout Euro Zone finances helped to boost the EUR USD most of the tradingsession. Early Wednesday morning, the Euro reached a high of 1.2072 beforecomments from Fed Chairman Bernanke and the results of the Fed Beige bookstrengthened the Dollar.

Higher equity and crude oil markets helped drive up demandfor riskier assets. This strength spilled over to the Euro. In addition,traders were a little more optimistic about the survivability of the Euro afterthe European Union finalized its rescue plan. Although sovereign debt issuesremain the major concern, short traders felt it was necessary to pare positionson this news.

Technically the Euro is still in a downtrend, but the chartsindicate there is room to the upside should the current weakness prove to beonly a retracement and test of the bottom at 1.1876. Recently hedge funds andlarge speculators have been shying away from selling weakness and have beenmore comfortable with selling retracements. If the bottom at 1.1876 is defendedon this current break, then look for the start of a rally back to the nearestretracement zone. Watch for renewed selling pressure once the Euro completesits retracement to 1.2164 to 1.2233.

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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