Euro Weakening on Renewed Debt Concerns in Spain

The Euro is weakening this morning on speculation the EuroZone’s sovereign debt crisis is worsening in Spain.

The Euro is weakening this morning on speculation the EuroZone’s sovereign debt crisis is worsening in Spain.

Pressure began on the EUR USD overnight after El Economistareported the International Monetary Fund, the European Union and the U.S.Treasury are putting together a credit line of as much as $307 billion for Spain.

After several days of short-covering, the Euro is givingback some of its gains this morning as the focus shifts back to sovereign riskconcerns and the global economic recovery.

Technically, the Euro made an attempt to continue its recentrally overnight before the news about Spain hit the wires. The rally hasexceeded a minor retracement zone but has fallen short of taking out the lastmain top at 1.2453. A trade through this level would have changed the maintrend to up on the daily chart.

Early in the trading session, the Euro is showing signs thatit may try to form a closing price reversal top. This would make thesingle-currency vulnerable to a short-term break. The current short-term rallyis 1.1876 to 1.2353. This makes 1.2114 to 1.2058 a potential downside target.

Short traders continue to control the direction of the Euroand for good reason. As long as situations such as the one developing in Spain thismorning continue to flare up, there exists the possibility of contagion.Although the European Union has pledged its support for its members and FedChairman Bernanke has vouched for the E.U.’s ability to do so, big hedge fundsand institutions are not budging on there major short-positions. As long as theEuro remains in the hands of these traders, any rally in the Euro will belabored and treated as another shorting opportunity.

There are technical factors taking place on the charts whichindicate the Euro may attempt to post a major retracement rally. The picture onthe weekly chart clearly indicates the Euro has room to the upside to retraceto as much as 1.2784. Sure this is possible, but it is going to take a major shiftin the thinking of the large investors and institutions before the cap will belifted to allow the Euro to rally. Until this takes place, continue to look fordownside pressure on the Euro.