The September Euro is trading higher against the U.S. Dollar overnight after European Central Bank council member Ewald Nowotny said some members favor granting the Euro Zone’s rescue fund a banking license.
The single-currency strengthened as Spanish and Italian bonds advanced as interest rates fell amid optimism that by giving the European Stability Mechanism a banking license, it would have more power to help contain the Euro Region’s debt crisis.
Although the Euro pared gains after a German report showed business confidence worsened in July, the comment from Nowotny continued to drive the technically oversold Euro higher. Some strategists feel that the Euro is strengthening on the thought that the move to enhance the ESM’s firepower will make it large enough to bail out Spain and Italy.
Daily September Euro Pattern, Price & Time Analysis
Granting a banking license to Europe’s rescue fund would give it direct access to ECB lending which would open the vault to additional lending if the 500 billion Euro cash reserves prove too small to bailout all of the problem nations.
Technically, the Euro is oversold and ripe for a short-term rally. The charts indicate that the last drive has stalled. Last night’s close was near the low of the day and the market did not open lower or even challenge the low for the week at 1.2051. This is a sign that the number of sellers is thinning and that it may take a solid short-covering rally to attract fresh shorts.
Based on the short-term range of 1.2335 to 1.2051, the first upside target is a 50% price level at 1.2183. This is followed by the 61.8% or Fibonacci retracement level at 1.2227. Finally, Gann angle resistance is at 1.2239 today. This angle will drop to 1.2216 on Thursday, putting it inside the retracement zone, creating a resistance cluster.
Since the main trend is down, traders should look for sellers to step back in following a move into the retracement zone. The main trend will remain down until the swing top at 1.2335 is violated.
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