Euro Changes Trend to Up; Set-up for Rally to 1.2960

The Euro surged to the upside overnight, takingout the last swing top at 1.2779 and changing the main trend to up on the dailychart.

The Euro surged to the upside overnight, taking out the lastswing top at 1.2779 and changing the main trend to up on the daily chart. Basedon the range of 1.3334 to 1.2587, the EUR USD is now set up for a possible testof the retracement zone of this range at 1.2960 to 1.3049. A downtrending Gannangle from the 1.3334 top is at 1.2974, suggesting the formation of aresistance cluster at 1.2960 to 1.2974 today and 1.2954 to 1.2960 on Thursday.

The initial catalyst behind the surge in the Euro overnightwas the bullish PMI news from Chinaand the better than expected growth report from Australia. Both news pieces helpedrally Asian stocks leading to greater demand for risk and subsequently theEuro.

News that the Euro Zone manufacturing recovery hit asix-month low failed to halt this morning’s advance. Overnight it was reported that themanufacturing purchasing managers’ index slowed to 55.1, with “moderated” growthboth in output and new orders.

According to the report, the hardest hit country in the EuroZone was Greecewhich is still trying to recover from its financial crisis from the Spring. Germany and France posted “strong growth”. The report also showed that the improvementswere “still centered on Germany,the Netherlands and Austria”.The recovery was “comparatively modest” in Italyand Spain.

Although this report suggests that the region is cooling,the strength in Germany and Franceshould be noted. The weaker countries are likely to bring up this fact at thenext European Central Bank meeting on September 3. ECB members want to beassured that the Euro Region as a whole recovers at a similar pace so that thestronger countries do not dominate the weaker economies.

Despite the change in trend to the upside in the Euro,momentum must continue to remain strong to drive this market to the objectiveminimum objective of 1.2960 over the near-term.