The measures announced this weekend by the ECB and other central banks surprised traders with their size and aggressiveness in addressing the Greek fiscal bailout and rising credit access impairment in the Euro zone. That it was a surprise was evinced by the size of the initial market reactions last night. That was first blush; what’s next?
Below is the daily chart for Euro currency futures. Friday’s inside day and range contraction meant that we should be anticipating a breakout, directional move today. We certainly got that on the open last night as it gapped 119 ticks above Friday’s high. What’s next?
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The 15 minute chart below gives us a much more granular view of today’s action. Last night saw it gap higher, sell off to the session low at 1.2807, then rally to the high of the day at 1.3097 after the ECB measures were announced. That rally is one possible payoff for the breakout setup.
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From the 1.3097 high it sold off, reached a low of 1.2817 by about 9:35 AM. It has since bounced, so there’s now a double bottom around the low.
This low area is a significant price level. As the daily chart shows, a 50% retracement of the rally off Friday’s low is at 1.2811, so it’s an important support area. More importantly, Friday’s high was 1.2803, so there’s still a four tick gap left open. A drop to fill in that gap could bring about a bigger selloff and undo the momentum of today’s central bank actions.
This is an important test of the credibility of the central banks, notably the ECB. They need for the momentum and goodwill from the bailout measures to hold, or we risk another 2008 style credit market seize up and ensuing slump. Today’s trade is important evidence as to the markets faith in the power of the central banks.
This is a sample of the analysis from my Swing Trader’s Insight advisory service. For information on STI, and to sign up for a free two week trial, visit here.
The information contained here includes information from sources believed to be reliable and accurate, but no guarantee is made as to accuracy, nor do they purport to be complete. Opinions are subject to change without notice. Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
