Euro Confirms Daily Closing Price Reversal Top

Overnight the Euro confirmed Monday’s closing price reversaltop after it came under selling pressure following a report in The Wall StreetJournal that said the U.S. Federal Reserve’s new quantitative-easing programwill be smaller than some investors had expected.

Overnight the Euro confirmed Monday’s closing price reversaltop after it came under selling pressure following a report in The Wall StreetJournal that said the U.S. Federal Reserve’s new quantitative-easing programwill be smaller than some investors had expected.

This triggered a sell-off in the EUR USD as traders paredlong positions that they had established to in anticipation of a moreaggressive QE package by the Fed.

On Monday, the Euro weakened after a surge to the upsideamid ongoing worries regarding Irish and Spanish sovereign debt. In moves verysimilar to those which took place in Greece this spring, “the cost of insuringIrish and other Euro-Zone government debt”, according to Marketwatch.com, “jumpedafter a S&P credit analyst warned that Ireland could be vulnerable to afurther downgrade if the costs of recapitalizing nationalized lender AngloIrish Bank continued to rise toward the ratings agency’s estimate of 35 billionEuros.”

Following the initial follow-through to the downsideovernight, the Euro reversed course after the ECB’s Juergen Stark said thecentral bank was on track to continue phasing out some of the special liquiditymeasures it had put in place during the height of the financial crisis. Inother words, the ECB feels that the economy in the region had strengthenedenough to warrant such a withdrawal of liquidity.

On Monday, the EUR USD posted a closing price reversal topafter Moody’s Investors Service said it cut Anglo Irish Bank’s unguaranteedsenior debt to Baa3 from A3, and cut its dated subordinated debt to Caa1 fromBa1.

The developing chart pattern suggested a possible top, whichwas confirmed in the overnight session. Rather than just outright selling theEuro, however, traders should be aware that the pace of the break from the topmay be hindered by lingering concerns that the U.S. Federal Reserve will engagein quantitative easing.

Technically, I had been anticipating a possible top or atthe least a technical bounce once the Euro reached the 50% price level of the main1.1876 to 1.5144 range at 1.3510. The current rally reached 1.3507 beforesellers stepped in.

Now that the top has been confirmed, the Euro may begin acorrection back to 50% of the 1.2644 to 1.3507 range. This price is 1.3075.

The technical pattern is clear, but in order for this tocome to fruition, it needs the cooperation of a couple of fundamental factors.Sovereign debt concerns are likely to be a bearish driving force, but this newscould be negated by bullish economic news from the Euro Zone or more bearisheconomic news from the U.S.

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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