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The September Euro is trading lower, but the best way to describe the trading action is “see-sawing”. The overnight action in the Euro is reminiscent of a market that is caught between two fundamental stories. Traders seem to be continuing to debate via price movement whether the debt-limit story in Washington or the sovereign debt stories in Europe is the leading story.
Despite news that the S&P Corp. issued a downgrading threat to the U.S.if President Obama and Congressional leaders don’t reach an agreement to increase the U.S.debt limit by August 2, the U.S. Dollar is trading higher versus the Euro. This could be because traders are putting more weight on the possibility that Europe’s debt crisis will escalate or that Euro Zone leaders will fail to finalize an agreement with Greece on a second aid package.
Euro Zone leaders appear to be hung up on approvingGreece’s second aid package because of issues involving “private sector involvement”. It seems that Germany and the Netherlands are opposed to “private sector involvement”. In essence, this means there is likely to be more debates on whether private bondholders will be required to share the cost of the Greece bailout.
Another factor creating nervousness in the market today is the impending release of the latest set of European bank stress tests today. Traders are hoping this latest release is a lot tougher than last year’s report which was widely criticized for being too soft.
Technically the main trend is down in the Euro on the daily chart. The main range is 1.4547 to 1.3811. This creates the key retracement zone at 1.4179 to 1.4266 that was tested successfully on Thursday. Additional Gann angle support comes in at 1.4051. Gann angle resistance is at 1.4327.
Despite having three key fundamental issues on the table, the market still appears to be leaning toward the sovereign debt issues in Europe as the key driving force.
