The Euro continued its slide on Tuesday and signs are developing which indicate that the problem is with the European Union and not the Euro. The market seems to be content with the weakness in the Euro. It’s the inability of the European Union to act as a cohesive unit that makes traders feel that a breakup may be coming. France and Germany are obviously upset at the turn of events and both feel, in my opinion, that it’s time to walk away from the notion of one unified currency.
After ten years, it appears that both the Germans and the French have finally realized that they cannot afford to support the wild spending habits of the other Euro Zone countries. Although some of the weaker countries are taking pre-emptive steps to shore up their economies through austere financial measures, it may be a case of too little, too late.
Today’s announcement to ban naked short-selling by the Germans is clearly a sign of desperation. This goes back to what I was saying a couple of weeks ago when I said that the European Union has no, and may have never have had a plan to deal with the situation that is taking place at this time
The question is …what is going to happen next? Will the EU announce that it is intervening to prop up the Euro? This usually does not work. Shorts will eat up any fresh money pumped into the market. The only time an intervention works is when a central bank tries to drive its currency lower since it controls the printing press. If EU does not intervene then the European Central Bank may slash interest rates to zero. This will also have a negative effect on the Euro since it will mean that the ECB is expecting no growth in the Euro Zone economy.
Continuing concern over the Euro and worries over the viability of a single currency system pressured the EUR USD throughout the day, leading to a sharply lower close. Earlier in the trading session, the Euro rallied on optimism generated by the start of the distribution of financial aid to Greece.
Technically, the Euro confirmed Monday’s closing price reversal bottom but the lack of follow-through to the upside and the sharp intraday sell-off helped drive the market through yesterday’s low at 1.2233. This action negated the reversal pattern.
The GBP USD finished lower but inside of yesterday’s range. This inside range is a sign of impending volatility. The British Pound is falling in sympathy with the Euro and on concerns that new austere financial measures will pressure the economy. Talk is also circulating that the Bank of England will use the poor economy as the reason to begin buying government bonds once again. This action would put liquidity back into the financial system thereby pressuring the Sterling.
The weaker Euro helped to trigger a reversal to the upside in the USD CHF. Earlier in the session this pair confirmed Monday’s closing price reversal top. Upside momentum drove this pair through the reversal top at 1.1446, thereby negating Monday’s reversal top. It will be interesting to see if the Swiss National Bank intervenes after saying on Monday that it is prepared to take decisive action to defend its currency.
Falling equity markets helped to weaken the USD JPY. Traders started selling riskier assets right before the mid-session for the safety of the lower yielding Japanese Yen. The trade under 92.41 indicates weakness and a possible break to the next support level at 91.61. A break through this level could trigger a massive break.
Lower demand for higher risk assets helped to drive the USD CAD higher on Tuesday. On Monday this market stopped at a 50% retracement level at 1.0424. Early Tuesday morning, this pair tested retracement zone support at 1.0273 to 1.0235. The subsequent turnaround and upside momentum indicates that the next rally is likely to drive this pair to at least 1.0498.
Falling U.S. equity prices pressured the AUD USD and NZD USD. Today’s sell-off took out Monday’s lows in both of these pairs indicating weakness. Downside momentum is building in the Australian Dollar which could trigger an even further decline to the February bottom at .8577 over the near-term.
The New Zealand Dollar also traded weaker as the investors sold higher yielding assets. Although the Kiwi is a little better than the Aussie today, downside momentum is likely to accelerate which could take this pair to the February low at .6806.
Local: 312-896-3930
Toll Free: 800-971-2440
Email: Info@BrewerFX.com
Website: www.BrewerFX.com
DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. The value of currencies may fluctuate and investors may lose all or more than their original investments. Risks also include, but are not limited to, the potential for changing political and/or economic conditions that may substantially affect the price and/or liquidity of a currency. The impact of seasonal and geopolitical events is already factored into market prices. Prices in the underlying cash or physical markets do not necessarily move in tandem with futures and options prices. The leveraged nature of FX trading means that any market movement will have an equally proportional effect on your deposited funds and such may work against you as well as for you. In no event should the content of this correspondence be construed as an express or implied promise or guarantee from B.I.G. Forex, LLC and Brewer Investment Group, LLC or its subsidiaries and/or affiliates that you will profit or that losses can or will be limited in any manner whatsoever. Loss-limiting strategies such as stop loss orders may not be effective because market conditions may make it impossible to execute such orders. Likewise, strategies using combinations of positions such as “spread” or “straddle” trades may be just as risky as simple long and short positions. Past results are no indication of future performance. Information contained in this correspondence is intended for informational purposes only and was obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.
