Also helping to underpin the Euro was the news that governments committed more than $430 billion in new aid to the International Monetary Fund to help protect the global economy against a worsening European debt crisis. At a meeting in Washington, the Group of 20 finance ministers and central bankers pledged nearly double the amount currently available.
The Euro began the week under pressure as traders flattened long positions while awaiting an important Spanish debt auction. After the auction results ended up better than expected, the Euro tested the key 1.3000 price level, only to find it heavily defended. This ignited the initial rally which gained momentum on the IMF and German confidence news. It should be noted that the rally took place under thin trading conditions and short-covering. These gains may fade this week as Spain’s finances and the French presidential election take center stage.
With Spanish 10-year government bond yields topping 6 percent for a third time this week, the Euro may remain hemmed in by the $1.30 to $1.32 range. Eye-balling the weekly June Euro swing chart, it is going to take a move above 1.3391 before the main trend will turn up. With the weekly close at 1.3219, bearish traders have plenty of room for selling opportunities if the short squeeze continues into this week.
Even though investors reacted positively to the news from Germany, the strength of the report only highlighted the divergences between the strong economy in the north versus the debt-laden Euro Zone members in the south. Additionally, the report does nothing to alleviate the possibility of Spanish debt yields rising to 7 percent this week. Problems in the banking sector as well as the prospect for slower growth because of the newly proposed austerity measures are also key reasons why the Euro should remain under pressure. The weekly chart clearly illustrates that a break through 1.3000 will open the door for a fast move to 1.2700 to 1.2600.
Technically, after finding support inside of a minor retracement zone at 1.3069 to 1.2969, the June Euro rebounded to close above a Gann angle cluster at 1.3193 to 1.3205. The close at 1.3219 puts the market on the bullish side of the uptrending Gann angle at 1.3205 and the downtrending Gann angle at 1.3193 this week.
There is room to rally to the last main top at 1.3391, but above this price, the market is likely to run into resistance at a 50 percent price level at 1.3419 and another main top at 1.3494. On the downside, crossing back below 1.3193 could mean another test of 1.3069. With the main trend down on the weekly chart, investors should continue to wait for the next selling opportunity.
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