Euro Retreats after 10-Day Rally; Pound Pressured Ahead of Budget Unveiling

The EUR USD retreated overnight following a 10-day rallyamid concern debt trouble at European banks will temper global growth. Investors are bailing out of the British Pound shortlybefore the new government unveils its first budget.

The EUR USD retreated overnight following a 10-day rallyamid concern debt trouble at European banks will temper global growth.

Selling pressure hit the Euro after European Central BankPresident Jean-Claude Trichet said nations in breach of European Union fiscalrules may face tougher punishments and ECB member Christian Noyer said somebanks in the Euro region are facing funding problems.

The Euro topped on Monday after Fitch credit-rating firmdowngraded BNP Paribas. The downgrading of the major bank shifted the focusback on the European debt crisis and the banking sector. Fitch citiedstructural issues related to the bank’s business mix as the main reason behindthe downgrade. Fitch also cited asset-quality deterioration in 2009 for thedowngrade.

Technically, the Euro posted a daily closing price reversaltop on Monday. This pattern was confirmed overnight with a follow-through moveto the downside. Based on the short-term range of 1.1876 to 1.2467, tradersshould look for a 2 to 3 day break or a retracement to 1.2171 to 1.2102.

Investors are bailing out of the British Pound shortlybefore the new government unveils its first budget. Chancellor of the Exchequer George Osbornewill present the budget to parliament today as he seeks to prevent the loss ofthe U.K.’striple-A rating. The market is looking for the budget to include severe cuts inspending and possible tax hikes.

This move toward fiscal tightening may lead to a prolongedperiod of loose monetary policy which may weigh on the Pound. In other words,the anticipated moves by the new government may mean the Bank of England mayhave to maintain liquidity or risk losing the economy.

Technically, Monday’s closing price reversal top inside of aretracement zone at 1.4810 to 1.4947 was confirmed overnight. This bearishchart pattern suggests a minimum 2 to 3 day break with a minimum downsidetarget of 1.4640 to 1.4571. More aggressive selling could trigger a retracementto 1.4582 to 1.4499. The chart pattern also suggests that 1.4582 to 1.4571 is asupport cluster which could attract buyers.

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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