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The September Euro is rebounding this morning following Monday’s early sell-off and subsequent reversal up. Yesterday’s low was reached at 1.4280, only .0009 below the 50% level of the 1.3925 to 1.4652 major range.
On the upside, traders are looking for a possible retracement of the 1.4652 to 1.4280 short-term range. This makes 1.4466 to 1.4510 a reasonable upside target. Downtrending Gann angle resistance is at 1.4452.
The S&P credit rating service surprised traders on Monday by cutting Greece‘s sovereign debt rating to CCC from B without a negative outlook. The initial reaction was bearish causing weak longs to lighten up their positions, however, after the dust settled, traders realized that the Euro still has an interest rate advantage over U.S. Dollar. As long as the European Central Bank remains hawkish while the U.S. Federal Reserve remains dovish, investors should see a strong tone in the Euro.
Finance ministers of the 17 members of the Euro Zone are meeting today in a joint effort to pledge support for Greece. Although the debt situation in Europe seems similar to the problems facing the U.S., the fact that the ECB is likely to raise its benchmark interest rate in July should continue to make this single currency more attractive than the Greenback.
Although focusing on the interest differential for direction seems to be the right thing to do at this time, bullish traders still have to be leery of possible surprises from other peripheral Euro Zone nations. Italy, Spain and Portugal still face a mountain of debt that could escalate into serious problems for the Euro Zone at any time. Any bad news emerging from these countries could trigger a quick turnaround in the Euro as traders have been trained to react first and ask questions later.
