Euro Posts Strong Gain as Banks Borrow Less from ECB

The EUR USD rallied sharply higher on Wednesdayafter the European Central Bank reported that demand for three-month loans bymember banks was weaker-than-expected. This news came as relief for traders who were looking for European banksto be a little more active at the lending window given the bleak outlook

The EUR USD rallied sharply higher on Wednesday after theEuropean Central Bank reported that demand for three-month loans by memberbanks was weaker-than-expected. Thisnews came as relief for traders who were looking for European banks to be alittle more active at the lending window given the bleak outlook for the EuroZone economy. The news tempered concerns that the European banking sector wasweakening and would need to continue to borrow from the ECB to shore upfinances.

Technically, the Euro found support at a key 50% level at1.2171. The rally from this level gives bullish traders a ray of hope that themarket will form a secondary higher bottom to help drive it through the mostrecent high at 1.2367. Bearish traderspoint out that the short traders still control the Euro based on the recentCommitment of Traders Report. Some feel that lower prices are coming and thattoday’s rally was just a technical glitch in the down trend. The chart indicatesthat a failure to hold 1.2171 should trigger a fast move to 1.2102.

Gains in the Euro may have been limited on rumors thatMoody’s rating service was getting ready to downgrade Spain’ssovereign debt. Some believe that this may already be priced into the marketbecause Fitch and the S&P Corp. had already downgraded Spanish bonds weeksearlier.

The U.S. Dollar was mixed against most major currencies onWednesday. The weak equity markets helped drive up demand for safety whilepressuring the commodity-linked currencies. The AUD USD broke through 50% support at .8469. Downside momentumindicates that a test of .8378 is likely over the near-term. The NZD USD completed its 50% retracement to.6865, but the inability to trigger a technical bounce at this level indicatesthat a break to .6896 is likely. The USD CHF rose sharply higher after an earlyattempt to break it failed. Upside momentum indicates a move to the early Junemain top at 1.0678 should be expected over the short-term.

Weak crude oil and equity markets weighed heavily on theCanadian Dollar. Concerns are being raised about Canada’s ability to grow itseconomy if crude oil continues to weaken. Traders are now beginning to price inthe possibility that the Bank of Canada will leave interest rates unchanged atits next meeting.

The big surprise of the day was the June ADP EmploymentReport. Early guesses were pegged at thecreation of anywhere from 23,000 to 100,000 jobs or a consensus of 60,000. The actual figure of 13,000 jobs created helpedthe Dollar to strengthen against all Forex markets except the Japanese Yen andEuro.

The lack of interest in the bearish ADP Report is a signthat traders are more focused on this Friday’s U.S. Non-Farm Payrolls Report.Economists are predicting a loss of about 130,000 jobs in June. This figure includesabout 250,000 temporary jobs.

Based on the weak close in the U.S. equity markets, it appearsthat the bears are in control. This also means that the Dollar is likely to beunderpinned by demand for less risky assets

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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