Image by jhyerczyk via Flickr
The September Euro pierced the last main bottom on the weekly chart at 1.3969, changing the main trend to down. Overnight the Euro also took out but regained the 50% level for the year at 1.3906. In addition, an uptrending Gann angle was broken and recovered at 1.3913.
All of these incidents confirm that the Euro has changed its trend to down on both the daily and the weekly charts. From a traders‘ perspective, the key is not to get caught in short-covering rallies due to short-term oversold conditions. Although the trend is down, trading at a major 50% level like 1.3906 actually indicates in the bigger picture that the Euro has reached a balance point for the year. From a technical perspective, this could mean the market is going to either build a base or trade in a choppy manner on both sides of the 50% balance point.
Fundamentally, the market has spoken and traders don’t like what is taking place inEurope. Previously holding the 1.4000 price level was an indication that the market had accepted the sweeping changes in Greece. Breaking through the 1.4000 level is an indication that the market believes the sovereign debt situation inItalyandSpainis likely to be worse than the problems in Greece.
As mentioned earlier, from a traders’ perspective, one key is to avoid getting caught in a short-covering rally. The size of the current break suggests that the market has reached oversold price levels. This is the technical viewpoint. Fundamentally, one has to think about events that could turn the market quickly in a counter-trend manner. This morning, for instance, the headline out of Europe is that the European Central Bank is buying Italian Bonds. In addition, any announcements regarding emergency meetings or financial aid packages are likely to stop the decline in the Euro while triggering a short-covering rally.
Clearly the main trend is down on the daily and weekly September Euro charts, however, trend traders have to manage the trade because of oversold markets while those who have been waiting to short have to remain patient for the right entry opportunity.
