The Euro continued its slide on Tuesday and signs are
developing that indicate the problem is with the European Union and not the
Euro. The market seems to be content with the weakness in the Euro. Itâ€™s the
inability of the European Union to act as a cohesive unit that makes traders
feel that a breakup may be coming. France
are obviously upset at the turn of events and both feel in my opinion that its
time to walk away from the notion of one unified currency.
After ten years, it appears that both the Germans and the
French have finally realized that they cannot afford to support the wild
spending habits of the other Euro Zone countries. Although some of the weaker
countries are taking pre-emptive steps to shore up their economies through
austere financial measures, it may be a case of too little, too late.
Todayâ€™s announcement to ban naked short-selling by the
Germans is clearly a sign of desperation. This goes back to what I was saying a
couple of weeks ago when I said the European Union has no, and may have never
had a plan to deal with the situation that is taking place at this time
The question is â€¦â€¦what is going to happen next? Will the EU
announce they are intervening to prop up the Euro? This usually never works.
Shorts will eat up any fresh money pumped into the market. The only time an
intervention works is when a central bank tries to drive its currency lower
since they control the printing press. If they donâ€™t intervene then the European
Central Bank may slash interest rates to zero. This will also have a negative
effect on the Euro since it will mean the ECB is expecting no growth in the
Euro Zone economy.
Continuing concern over the Euro and worries over the
viability of a single currency system pressured the EUR USD throughout the day
leading to a sharply lower close. Earlier in the trading session, the Euro
rallied on optimism generated by the start of the distribution of financial aid
Technically, the Euro confirmed Mondayâ€™s closing price
reversal bottom but the lack of follow-through to the upside and the sharp
intraday sell-off helped drive the market through yesterdayâ€™s low at 1.2233.
This action negated the reversal pattern.
The GBP USD finished lower but inside of yesterdayâ€™s range.
This inside range is a sign of impending volatility. The British Pound is
falling in sympathy with the Euro and on concerns that new austere financial
measures will pressure the economy. Talk is also circulating that the Bank of
England will use the poor economy as the reason to being buying government
bonds once again. This action would put liquidity back into the financial
system thereby pressuring the Sterling.
The weaker Euro helped to trigger a reversal to the upside
in the USD CHF. Earlier in the session this pair confirmed Mondayâ€™s closing
price reversal top. Upside momentum drove this pair through the reversal top at
1.1446, thereby negating Mondayâ€™s reversal top. It will be interesting to see
if the Swiss National Bank intervenes after saying on Monday that it is
prepared to take decisive action to defend its currency.
Falling equity markets helped to weaken the USD JPY. Traders
started selling riskier assets right before the mid-session for the safety of
the lower yielding Japanese Yen. The trade under 92.41 indicates weakness and a
possible break to the next support level at 91.61. A break through this level
could trigger a massive break.
Lower demand for higher risk assets helped to drive the USD
CAD higher on Tuesday. On Monday this market stopped at a 50% retracement level
at 1.0424. Early Tuesday morning, this pair tested retracement zone support at
1.0273 to 1.0235. The subsequent turnaround and upside momentum indicates that
the next rally is likely to drive this pair to at least 1.0498.
equity prices pressured the AUD USD and NZD USD. Todayâ€™s sell-off took out
Mondayâ€™s lows in both of these pairs indicating weakness. Downside momentum is
building in the Australian Dollar which could trigger an even further decline
to the February bottom at .8577 over the near-term.
The New Zealand Dollar also traded weaker as the investors sold
higher yielding assets. Although the Kiwi is a little better than the Aussie
today, downside momentum is likely to accelerate which could take this pair to
the February low at .6806.
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