The March Euro futures contract changed its trend to up on the daily chart on Wednesday after it broke through the January 3 swing top at 1.3085. The subsequent follow-through rally has put the market in a position to test a downtrending Gann angle at 1.3191 and a Fibonacci retracement level at 1.3204. This creates a potential resistance cluster.
Now that the Euro is trading on the bullish side of a 50 percent price at 1.3094, this level is new support. This is followed by an uptrending Gann angle at 1.2987. Slow and steady can best describe this nine day rally so any volatile or spiky action is likely to indicate a developing short-term shift in sentiment. Since this can be described as a prolonged move in terms of price and time, traders should also watch for a closing price reversal top to signal the end of the move and perhaps the start of a short-term correction.
Fundamentally, the rally started when financial peace broke out in Europe in the form of serious talks with Greece regarding its refinancing. The fact that Germany’s economy is not falling apart contributed to the rally.
While the calm in Europe may have helped halt the decline and trigger the short-covering rally, yesterday’s news that the U.S. Federal Reserve may keep interest rates at extremely low-levels into late 2014 is fueling today’s rally. Apparently the Asian traders liked it based on their overnight support. Who’s to blame them, it is basically an announcement of free money and this is the fuel that drives up demand for risky assets.
With U.S. rates at near zero and likely to stay their for another two years, money is once again seeking its highest level and that is in the higher yielding currencies such as the Euro, Canadian Dollar and Australian Dollar. Interest rate deferential trading is back in vogue today, forcing the situation in Europe to take a back seat. How long this will last is the question, but today it is the catalyst behind the move.
This doesn’t mean you can take your eye off of the debt situation in Europe, but what it does say is that there is a relative calmness in the markets right now and institutions and banks are being allowed to do what they do best and that is move money around, even if it means chasing an ultra-low yield. Just keep in mind that they are making plenty off of the lending spread so don’t feel sorry for them. It’s not like they are getting paid the same yields to lend money as the middle-class investor in the U.S.
For more information, please visit http://patternpricetime.com/.
