The December Euro is trading lower overnight. The initial break was triggered by a sharp drop in Chinese equities. Traders perceived the weakness in the equities as a sign that today would be a “risk-off” day. Later in the session, the Euro rebounded from its low after a news report surfaced stating that China’s central bank cut the reserve requirement ratio for its banks by 50 basis points. This was the first cut in nearly three years and marked a move toward easier monetary policy in the midst of the threat of a global recession. After these early events the Euro settled into a range proving once again that headlines from Europe are likely to be the key market drivers today.
On Tuesday, the EU Finance Ministers approved the release of Europe’s contribution to Greece’s 8 billion Euro ($10.7 billion) aid tranche. This seems to have been already priced into the market. They also agreed on a plan to leverage the funds of the 440 billion Euro European Financial Stability Facility (EFSF). This move was designed to give the fund more firepower. This was also probably priced into the market since it was originally proposed in late October. Although it is not expected to be operational until mid-January, critics are already saying that the EFSF will be underfunded.
Daily December Euro Pattern, Price & Time Analysis
On the agenda today is more speculation regarding the EU’s plan to speed up the process of providing funding for sovereign debt bailouts without the need of a change in the entire EU treaty. The official announcement of this plan is not expected until next week’s EU summit on December 9. Traders will also be speculating on whether the EU Finance Ministers will invite the International Monetary Fund to have a greater role in helping to stabilize Europe. This comes in the wake of the failure by the European Central Bank to quell the rise in interest rates in Spain and Italy with its bond buying campaign.
Technically, the December Euro is trading both sides of a downtrending Gann angle from the 1.4241 top at 1.3281 today. This price may act as a pivot price. Based on the short-term range of 1.3212 to 1.3444, it looks as if the retracement zone at 1.3328 to 1.3301 could be the key to the market’s short-term direction. Traders have to watch how the market behaves in this area because holding this zone could mean the formation of a secondary higher bottom and the start of the next leg up.
