Euro Rallies on Upbeat German Economic News; Will Japan Intervene?

The Euro is up this morning following a four-day setbackwhich saw the currency drop from its highest level since late April. After reachinga low at 1.2780 on Thursday, the Euro has recovered slightly from this leveland is now resting on an uptrending Gann angle at 1.2856.

The Euro is up this morning following a four-day setbackwhich saw the currency drop from its highest level since late April. After reachinga low at 1.2780 on Thursday, the Euro has recovered slightly from this leveland is now resting on an uptrending Gann angle at 1.2856.

This angle is a key balancing point and must hold in orderto trigger the start of a short-covering rally back to 1.3057. A failure tohold this potential support angle could trigger further weakness which willeventually lead to a decline to a major 50% level at 1.2605.

Overnight the Euro received some support following therelease of a report which showed the German economy grew at the fastest pace intwo decades. This news helped underpin the market, leading to speculation that Europe is on a path to recovery.

Germany’sgross domestic product rose 2.2 percent in the second quarter from the firstquarter. This growth rate was higher than analyst estimates of 1.3 percent andrepresented the fastest pace since 1991. The news helped trigger some lightbuying and short-covering, but gains may have been limited because this news isbackward looking. At this time, traders are concerned about future economicgrowth.

The USD JPY is giving up some of its gains from the last twodays, but is still in a position to post a weekly closing price reversalbottom. Last week the Dollar/Yen closed at 84.48, but after reaching a 15-yearlow this week, rallied, putting it in a position today to finish higher for theweek. A closing price reversal bottom once confirmed by follow-through buyingoften leads to the start of a 2 to 3 week rally which culminates at a major 50%price level. In this case, the potential upside target is 89.55. A failure toclose higher this week sets up the Dollar/Yen for further downside action nextweek.

The current two-day rally in the USD JPY has most likelybeen a reaction to the “verbal intervention” by the Japanese government earlierthis week. Some traders feel the government will intervene at this time, butdoubts still linger about its effectiveness.

According to the Bank of Japan minutes from the July 14-15meeting published overnight, the BoJ is closely monitoring the effect of astrong Yen and falling stock prices on the economy. If one interprets this to mean that the BoJis seriously considering an intervention at this time, then this news will actas the catalyst to drive the Dollar/Yen sharply higher.

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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