Although the EUR USD is trading lower this morning due to
contagion fears in the Euro Zone, this morningâ€™s sell-off may only be a
short-term correction of last weekâ€™s spectacular rise.
Over the week-end, Spainâ€™s government took over a
financial institution, renewing fear that the financial crisis in the Euro Zone
is spreading. The first reaction by nervous traders was to sell the Euro.
Technically however, the current break may only be a
correction of last weekâ€™s range. This makes 1.2407 to 1.2345 key support this
morning. Traders should watch for a possible technical bounce in this zone
especially if it begins to appear that the action by the Spanish government has
contained the problem.
A failure to attract buying in the retracement zone means
that new shorts are likely to drive this market lower. Renewed selling pressure
will also serve as a sign that the recent rally was only a short-squeeze rather
than new longs.
The Euro finished the week higher, but more importantly
posted a closing price reversal bottom on the weekly chart. This pattern
suggests that this weekâ€™s short-covering rally could be far powerful than
The short-covering rally which began on Wednesday continued
in the Euro on Friday ahead of Germanyâ€™s
vote to approve the massive deal to save the common currency and keep in check
the Euro Zone debt crisis.
Technically, the current daily closing price reversal
pattern usually triggers a 2 to 3 day rally. This part was confirmed by the
three day rally, however, the upside target is usually a 50% to 61.8%
retracement of the last leg down. Based on the last range of 1.3342 to 1.2143,
the retracement zone is pegged at 1.2742 to 1.2884.
Because the Euro also made a closing price reversal on the
weekly chart, another upside target has been established. The weekly main range
is 1.3691 to 1.2143. The weekly retracement zone targets 1.2917 to 1.3100 as
the potential upside target.
The best conclusion is that the combination of the
daily/weekly closing price reversals indicates that something more powerful
than just a simple short-covering rally may be taking place. Be prepared for
more upside action next week as shorts will continue to cover aggressively
until the Euro reaches the key retracement zones.
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Mon 18 Dec
10:00 EZ- final HICP Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
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15:30 US- EIA Crude Thu 21 Dec
03:00 JP- BOJ Decision
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POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.
POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity
POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
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