Euro Confirms Reversal Top on Debt Concerns

The Euro istrading lower on Tuesday following a daily closing price reversal top the daybefore. While this technical pattern is considered bearish, it doesn’tnecessarily mean a change in trend to down, but most often leads to ameaningful 50% to 62% correction of the recent range.

The Euro istrading lower on Tuesday following a daily closing price reversal top the daybefore. While this technical pattern is considered bearish, it doesn’tnecessarily mean a change in trend to down, but most often leads to ameaningful 50% to 62% correction of the recent range.

Based onthe short-term range of 1.3428 to 1.4036, expectations are for a minimumretracement to 1.3732 to 1.3660. After walking up a Gann angle moving .004 perday, the Euro finally failed to hold this angle as support on Monday, leadingto the start of today’s break. Today this angle comes in at 1.4068 and ismoving away from the market. This means the market is likely to fall back intothe next Gann angle at 1.3748.

Combined withthe aforementioned 50% level, expectations are for the Euro to continue itsslide back into a newly formed support cluster at 1.3748 to 1.3732.

The Euroreceived a boost last week after European Central Bank President Jean-ClaudeTrichet signaled a possible interest rate hike mainly due to inflationaryconcerns. In fact, the Euro’s bottom in January could be traced to the shift inthe ECB stance from dovish to hawkish.

This beingsaid, it still appears that talk of an interest rate hike may have been enoughto drive the Euro to 1.40, but may not be enough to sustain the rally abovethis level over the near-term. Tuesday’s overnight sell-off highlights thatrising tensions over Euro Zone periphery debt are weighing more on the minds ofinvestors at this time than whether the ECB is ready to hike its benchmark rateor not.

With amajor Euro Zone leadership meeting taking place on March 11, long traders maybe feeling the need to take a little off the table after a sizeable rally interms of price and time. Although it is easy to blame potential fiscal problemsas the reason for this sell-off, technically it appears the Euro has reached akey psychological area and overbought status simultaneously. This is the reasonwhy traders should only expect a correction at this time.

With someanalysts agreeing that the Euro Zone leadership will come to terms with itslingering debt problems and reach an agreement on funding the debt as well asfiscal reforms, the real test will be how the Euro reacts when it eventuallytests the retracement zone at 1.3732 to 1.3660. The U.S. has debt problems of its ownwhich far outweigh the issues in the Euro Zone periphery. This leads one toconclude that the Euro is likely to rebound following a meaningful correction.

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For furtherinformation on this and other Pattern, Price & Time products visit our websiteat http://patternpricetime.com.

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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