Optimism is driving the December Euro higher this morning. Hopes are rising that next week’s European Union summit will lead to a manageable solution to the expanding European debt problem. The key phrase is “manageable solution” since European leaders have demonstrated in the past that they are good at developing plans but have a hard time implementing them.
The size of the recent decline indicates that short-traders were in control so it makes sense to deduce that short-covering is driving the current rally. Without economic reports to guide traders and no one on record hinting at what the EU summit expects to accomplish, the Euro is likely to be headline driven until the summit takes place on December 9. Because of this scenario, traders have to be careful not to get caught up in the volatility. Headline risk is high and traders should make adjustments accordingly.
Daily December Euro Pattern, Price & Time Analysis
The 2-day rally from last week’s low at 1.3212 has been impressive, but not trend changing. The main trend still remains decisively down so the move we are witnessing is simply a rally in a bear market. Since it is being driven mainly by short-covering and position squaring, it remains vulnerable to a fast turnaround and headline risk. With the main trend down, the best way to approach this market remains on the short-side.
The penetration of the downtrending Gann angle at 1.3321 is a sign of developing strength since it controlled the market’s direction for 23 trading sessions. If the December Euro can maintain the pace of its current rally it could reach a key retracement zone over the near-term. Based on the range of 1.4241 to 1.3212, the main objective of the current rally is the 50 percent to 61.8 percent retracement zone at 1.3727 to 1.3848 respectively. This is the area that is likely to attract a fresh round of selling pressure.
