Monday February 7, 2011 - 13:26:57 GMT
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Euro Appears Vulnerable to Downside
Forex markets are trading in tight narrow ranges following the expanded range
trade on Friday triggered by the release of the U.S. Non-Farm Payrolls report.
With Non-Farm Payrolls coming in well below pre-report guesses and the
Unemployment Rate dropping unexpectedly, on the surface the report appeared to
be bearish for the Dollar, but the response by the U.S. Treasury markets seems
to be indicating the opposite.
Treasury yields soared to their highest level in more than nine months on
Friday. Higher yields will make the Greenback more attractive to foreign
investors. This could pressure currency markets especially the Euro and the
Finance Minister Christine Lagarde is making headlines this morning because of
an article in The Wall Street Journal stating her concerns about the perception
of a strong Euro given the weak U.S. Dollar and Chinese yuan. She blamed
global-exchange imbalances and implied that the Euro was a victim because of
the Dollar and the Yuan. She is looking for international monetary system
reform to prevent the Euro from strengthening due to deliberately weak
currencies. A strong Euro may hurt trade because it makes European goods
relatively more expensive when compared to U.S. and Chinese goods.
.618 retracement of the 1.2873 to 1.4282 range to 1.3861, the Euro has been
under pressure. Some analysts are trying to build a case for a short-term head
and shoulders formation, but this analyst feels there is not enough information
to make this call. Instead the focus should be on the basic swing chart
formation. Simply stated, the trend has turned down since the last swing bottom
at 1.3570 failed to hold. Although the Euro did not accelerate to the downside when
this price was penetrated, it looks as if it is beginning to look vulnerable.
the rally from 1.2873 to 1.3861, traders should watch for the start of a
correction back to 1.3367 to 1.3250 over the near-term. This morning the Euro
is straddling a 50% price level at 1.3577. Once the market clears this level
and the swing bottom, look for longs to throw in the towel and for short
traders to begin pressing the Euro.
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