Tuesday September 28, 2010 - 13:43:51 GMT
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Euro Confirms Daily Closing Price Reversal Top
Overnight the Euro confirmed Mondayâ€™s closing price reversal
top after it came under selling pressure following a report in The Wall Street
Journal that said the U.S. Federal Reserveâ€™s new quantitative-easing program
will be smaller than some investors had expected.
This triggered a sell-off in the EUR USD as traders pared
long positions that they had established to in anticipation of a more
aggressive QE package by the Fed.
On Monday, the Euro weakened after a surge to the upside
amid ongoing worries regarding Irish and Spanish sovereign debt. In moves very
similar to those which took place in Greece this spring, â€śthe cost of insuring
Irish and other Euro-Zone government debtâ€ť, according to Marketwatch.com, â€śjumped
after a S&P credit analyst warned that Ireland could be vulnerable to a
further downgrade if the costs of recapitalizing nationalized lender Anglo
Irish Bank continued to rise toward the ratings agencyâ€™s estimate of 35 billion
Following the initial follow-through to the downside
overnight, the Euro reversed course after the ECBâ€™s Juergen Stark said the
central bank was on track to continue phasing out some of the special liquidity
measures it had put in place during the height of the financial crisis. In
other words, the ECB feels that the economy in the region had strengthened
enough to warrant such a withdrawal of liquidity.
On Monday, the EUR USD posted a closing price reversal top
after Moodyâ€™s Investors Service said it cut Anglo Irish Bankâ€™s unguaranteed
senior debt to Baa3 from A3, and cut its dated subordinated debt to Caa1 from
The developing chart pattern suggested a possible top, which
was confirmed in the overnight session. Rather than just outright selling the
Euro, however, traders should be aware that the pace of the break from the top
may be hindered by lingering concerns that the U.S. Federal Reserve will engage
in quantitative easing.
Technically, I had been anticipating a possible top or at
the least a technical bounce once the Euro reached the 50% price level of the main
1.1876 to 1.5144 range at 1.3510. The current rally reached 1.3507 before
sellers stepped in.
Now that the top has been confirmed, the Euro may begin a
correction back to 50% of the 1.2644 to 1.3507 range. This price is 1.3075.
The technical pattern is clear, but in order for this to
come to fruition, it needs the cooperation of a couple of fundamental factors.
Sovereign debt concerns are likely to be a bearish driving force, but this news
could be negated by bullish economic news from the Euro Zone or more bearish
economic news from the U.S.
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