Euro Reverses Up after Testing 1.2164 Retracement Level
The Euro is rallying this morning after testing the 50%
level at 1.2164 overnight. The actual low of the break from Mondayâ€™s high was
1.2167. The ability to recover after early session weakness is a sign that
investors are shrugging off yesterdayâ€™s news that Moodyâ€™s downgraded Greeceâ€™s debt.
The strong turnaround has put the market in a position to take out yesterdayâ€™s
high at 1.2297. The main trend on the daily chart will remain down, however,
until the May 28th top at 1.2453 is violated.
The Euro surged early in the session on Monday as upbeat
feelings about the global recovery helped drive up demand for higher risk
assets. Yesterdayâ€™s strong rally was a continuation of last weekâ€™s bottoming
action which was triggered by positive comments from Fed Chairman Ben Bernanke
and European Central Bank President Jean Claude Trichet.
Bernanke told the Senate last week that he believed that Europe has the money to protect its currency from
collapse. The market rallied on his comment because it meant that Europe would use all means to prevent sovereign debt
issues from escalating. Trichet said the ECB would not increase stimulus in the
economy. This meant the economy was strong enough to not require any additional
aid from the central bank. Both comments were supportive to the Euro.
Late Monday, the Euro broke from its high but still managed
to hold on to most of its gains. News of a downgrade of Greece debt by
Moodyâ€™s made weak longs nervous, triggering a profit-taking break. Many traders
feel that the break was unnecessary because the move by Moodyâ€™s was based on
old news. Investors also feel move optimistic about the Greeceâ€™s future
Last weekâ€™s closing price reversal bottom at 1.1876 was
confirmed on Monday. Based on this pattern, watch for the start of a 2 to 3
week retracement with 1.2784 the next potential upside target.
In summary, the weekly chart is set up for a strong
retracement rally to 1.2784, provided the Euro holds a test of a minor
retracement level at 1.2087 over the next few days.
The main trend in the GBP USD turned up on Monday when the
market crossed the last swing top at 1.4769. There was very little
follow-through to the upside, however, because the Sterling ran into a 50% retracement level at
1.4810. The British Pound is under some light pressure this morning after it
was reported that U.K.
inflation slowed in May for the first time in three months.
Technically, the main trend is up, but the rally could stall
unless upside momentum can overcome resistance at 1.4810. Regaining this price
and building support can trigger another rally to the .618 retracement level at
The USD JPY is under pressure this morning despite greater
demand for higher risk assets, lead by a rally in U.S. equities. Investors are
supporting the Japanese Yen after the Bank of Japan said Tuesday it would offer
financial institutions up to 3 trillion yen in new lending. â€śThrough this
measure, the bank expects that the efforts of firms and financial institutions
to support Japanâ€™s
economic growth will be further stimulated,â€ť the BoJ said in a statement. Traders
seem to like the news and are buying the Japanese Yen as a sign of support for
the BoJâ€™s decision.
Technically, the break back under the 50% level at 91.61 is
a sign of weakness for the Dollar/Yen. The daily chart indicates that a move
under 90.83 could trigger an acceleration to the downside.
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