The Euro is bouncing back this morning after briefly piercing the recent swing bottom at 1.4048 and a .618 retracement level at 1.4006. This morning’s rebound doesn’t suggest a change in investor sentiment, but simply oversold conditions. Clearly the main trend is down on the daily chart given the series of lower tops and lower bottoms.
Traders seem a little reluctant to press the market lower at current levels without bearish news. In addition, no one really wants to short the market in the hole and risk getting caught in another bear trap like the one that took place last week. So while short traders remain in control, the only reason for a short-term rally would be to set up a fresh shorting opportunity.
The fundamentals at this time remain too bearish to suggest that bottom-pickers will generate enough buying power to reverse the trend back to up. The debt situation in Greece appears ready to explode. In addition, fuses have been lit in Spain and Portugal.
Although a rate hike by the European Central Bank helped prop up the Euro recently, it appears that investors are beginning to believe that the ECB will not be able to raise rates again for some time if it is going to prepare to bailout the three main struggling sovereign nations.
Based on the current developing chart pattern, look for a near-term rally to 1.4157 to 1.4201 before new shorts re-emerge. The overnight rally was technically based because of oversold conditions, however some suggest it may have been triggered by a Fed official comment stating the U.S. central bank would continue to leave interest rates low even after its support program ends in June.
Either way, it still looks like the pressure is on the Euro unless the ECB surprises everyone by maintaining a hawkish stance in the face of a pretty serious debt situation.
