Interest Rate Speculation Driving Euro Higher

TheEuro is rebounding this morning after a sharp sell-off on Wednesday. Pressurewas on the single currency yesterday following the confirmation of a technical closingprice reversal top the day before.

The Euro isrebounding this morning after a sharp sell-off on Wednesday. Pressure was onthe single currency yesterday following the confirmation of a technical closingprice reversal top the day before. Fundamentally, traders turned bearish onthe currency after Moody’s Investors Service downgraded 30 Spanish banks andfollowing the resignation of Portugal’sprime minister.

Sentiment hasshifted overnight however as traders weighed the chances of a EuropeanCentral Bank rate hike versus concern that the fiscal crisis in the EuroZone’s worst areas were deepening. The ability to shrug off the bad news soeasily means that expectations about higher rates are the true driving force inthis market.

Technically, theEuro appeared headed toward the retracement zone of the short-term rally of1.3752 to 1.4248. This zone has been identified as 1.4000 to 1.3941.Additionally, a pair of uptrendingGann angles at 1.3988 and 1.3933 is providing the market with direction andcould serve as major support if tested.

With the next ECBmonetary policy meeting scheduled for April 7 the near-term focus will be onwhether the Euro has enough muscle to post a new move high through 1.4248 or ifit will settle into a range. Settling into a range could mean the market willget another chance to complete the short-term retracement to 1.4000 to 1.3941.

With today shapingup so far as a “non-news day”, expectations are for a minimum retracement to1.4151 to 1.4174. This area is going to be critical to the short-term picture.Bearish traders may try to stop the rally in this zone to set up a potential secondarylower top pattern while bullish traders will attempt to regain this zoneand put the Euro in a position to rally further.

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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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