Rising Stocks, Commodities Trigger Turnaround in Euro
The Euro rallied late in the trading session after an early
session setback.Advances by U.S. stocks and
commodities triggered a surge in demand for riskier assets.
The EUR USD started the week strong but overbought
conditions and fresh concerns about the European banking system following a
downgrade of BNP Paribas by Fitch stopped the rally, triggering a technical
closing price reversal top.
Later in the week, fresh economic data showing a slowdown in
economy and a dovish comment by the Federal Reserve helped stabilize the Euro,
forcing it to trade in a range most of the week.
Investors seemed to shed Dollars in favor of the Euro most
of the week after the Fed comments and poor U.S. housing data signaled that
interest rates would remain low for a long time. Some are beginning to feel
that Europe‚Äôs move to austerity may actually strengthened the Euro Zone economy
before the U.S.
gets its economy back on track.
Technically the Euro finished lower for the week but in a
position to move either way. The main trend on the daily chart is up, but value
is a concern for investors. This means that it may still be vulnerable to a
near-term break into a retracement zone at 1.2171 to 1.2102. If appetite for
risk continues to increase however, these traders waiting for a cheaper Euro
may be left in the dust of the next up leg.
Friday‚Äôs rally helped form a new higher main bottom at
1.2209. This could mean the market is set up to move higher. A drive through
the last main top at 1.2467 will solidify the uptrend and could trigger a
breakout to the upside. The only thing standing in the way of an all out
breakout to the upside is a pair of downtrending Gann angles at 1.2522 and
1.2591. Once these angles are cleared, look for the Euro to complete its weekly
chart retracement to 1.2609 to 1.2782.
The GBP USD posted a strong gain this week buoyed by the
release of the new U.K.
budget and signs of a weaker economy in the U.S.
traders rallied the British Pound after the new government announced its budget
plans, complete with calls for higher taxes and severe spending cuts. Traders
accepted this news because it represents a better plan than the previous
government. Even though some feel the spending cuts will hurt the economy in
the short run, the long-term outlook for the U.K. economy looks a lot better.
Technically, the GBP USD is in an uptrend and looking strong
after it blew through a key resistance zone this week at 1.4810 to 1.4947. A
new main bottom was formed at 1.4686, creating further evidence that the buying
was greater than the selling. Despite all of the strong action on the daily
chart, the weekly chart is still in a downtrend making this market vulnerable
to periodic short-term corrections.
Like the Euro, some investors feel the new budget proposal
by the U.K.
government has the British economy on track for a faster recovery than the U.S.
Additional support for the British Pound this week also came from the news in
the Bank of England minutes that one committee member voted for a hike in
interest rates. The dovish tone in the Fed announcement suggests that its
committee still feels that the U.S.
economy is not ready for an interest rate hike. This could help underpin the Sterling over the near-term.
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