The September Euro is under pressure this morning. The current rally fell well short of taking out the last major top at 1.4547, putting the market in a position to post a potentially bearish daily closing price reversal top.
Fundamentally, it looks like some of the weakness in the Euro is being created by a typical buy the rumor, sell the fact scenario. The Euro soared earlier in the week driven by the initial euphoria over fresh aid for Greece. Now that the Greece sovereign debt issues seem to have been alleviated, investors turned their focus on other risks in the Euro Zone.
The new Greek bailout plan which includes participation from private investors helped drive the market higher, however skepticism remains about the long-run ability of the plan to prevent contagion which could limit further gains.
After posting strong gains on Thursday, the current action is suggesting that much of the deal was already priced into the single currency, setting up the September Euro for a potential short-term sell-off.
One factor that may save the Euro from posting a significant decline is the uncertainty about theU.S.government’s debt-ceiling and spending cuts standoff. In addition, a hawkish tone by the European Central Bank and a continuing dovish tone by the U.S. Federal Reserve are two factors that may underpin the Euro versus the U.S. Dollar.
Even withGreeceout of the way, traders are still wondering if the Euro has reached its high for the year. While it remains rangebound at this time, an acceleration of debt issues in the Euro Zone could trigger further liquidation during the second half of the year.
The inability to pierce the 1.45 level on good news may mean the Euro is poised for another shot at the recent bottom slightly under 1.40. A sustained break under this level could trigger an even further decline to 1.30 before the end of the year if all the bearish factors line up.
