Euro Weakens after Nearing Top at 1.3861

The Euro backed off in Asian tradingafter nearing the February 2 top at 1.3861. Although the slight break from thehigh at 1.3837 has the appearance of a daily closing price reversaltop-in-the-making, there isn’t an apparent reason for the break at this timeexcept perhaps the lack of fresh buyers.

The Euro backed off in Asian tradingafter nearing the February 2 top at 1.3861. Although the slight break from thehigh at 1.3837 has the appearance of a daily closing price reversaltop-in-the-making, there isn’t an apparent reason for the break at this timeexcept perhaps the lack of fresh buyers.

Stabilizing crude oil pricesovernight may be lending some support to the U.S. Dollar which is translatinginto a slightly weaker Euro; however the single-currency’s main driving forceremains the anticipation that European Central Bank members would provide moreinformation about its inflation and interest rate outlook at next week’s March3 meeting.

The rallythis week in the Euro in the face of a potential flight-to-safety rally in theDollar because of turmoil in the Middle East and North Africa demonstrates that interest rates are still the majorconcern for investors.

Despitelingering concerns about debt issues in peripheral Euro Zone countries, thisweek’s substantial rise in crude oil prices is likely to continue to keep thepressure on the ECB to squelch growing inflation fears. This means that thepolicymakers are likely to issue a more hawkish statement at its meeting nextweek.

Based onthis week’s rally, the Euro is likely to fall hard next week should the ECBrefrain from addressing inflation. A mere mention of inflation may be enough tostabilize the price action, but it appears that traders are now looking forsomething a little more concrete than just a cursory statement mentioning itsconcern about inflation. Traders will be looking for a little more informationto layout a forecast for the next rate hike.

Technicallythe February top at 1.3861 stopped the rally last night, triggering a slight profit-takingbreak into the U.S.opening. Although a minor closing price reversal top may be taking place, itdoesn’t look as if the pattern will be trend-changing, but rather corrective innature. Based on the short-term range of 1.3428 to 1.3837, this suggests anear-term retracement into 1.3633 to 1.3584.

Thismorning the Euro is straddling an uptrending Gann angle at 1.3788. A decisivemove to the downside through this level is likely to trigger an acceleration tothe downside with 1.3608 the next likely downside target. On the upside,besides the former top, downtrending Gann angle resistance is at 1.3877.

Today’saction suggests the Euro may become rangebound until the release of the ECBpolicy statement on March 3.

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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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