The December Euro is advancing this morning ahead of this week’s European summit. On Friday the single currency produced a daily closing price reversal top that has the potential to trigger a break if it can be confirmed. This week’s session is trading inside of Friday’s range creating an inside day so far. This usually indicates impending volatility.
Daily December Euro Pattern, Price & Time Analysis
A rally through the reversal top at 1.3550 negates the pattern and could trigger an acceleration to the upside with 1.3727 a potential upside target. A trade through 1.3362 will confirm Friday’s closing price reversal top. A move to the downside is likely to be labored since a Fibonacci level at 1.3341 and an uptrending Gann angle at 1.3332 has formed a support cluster. Regaining a steeper uptrending Gann angle at 1.3452 will be a sign of strength especially on a closing basis.
Over the week-end, Italy’s cabinet approved a plan to cut its deficit. The new plan calls for 30 billion Euros of austerity and growth measures. This translates into delayed retirements and more taxes. Both houses of parliament will debate this proposal today.
Late last week, Euro Zone finance ministers gave their approval for work on a plan to recycle national central bank funds through the International Monetary Fund. The fund is expected to be used to underwrite loans to Italy or Spain. Keep an eye on this plan since it is too early to assess its impact on the market at this time. This plan could provide stability to the Euro Zone and will likely have a positive impact on the Euro.
On December 8, the European Central Bank is expected to cut its benchmark interest rate to 1 percent from 1.25 percent. Typically a rate cut weakens a currency, but in the case of the Euro, this action will be seen as a positive because it will serve as an attempt to promote growth in order to soften the anticipated recession. After an initial rally the Euro may begin to sell-off until something more concrete is agreed upon by Euro Zone officials.
Later this week, the Euro Zone’s gross domestic product will be released. The report is expected to show that the region grew 0.2 percent in the third quarter. This is unchanged from the previous quarter. A negative report will mean the recession is beginning.
Overall, pressure should continue on the Euro following the current price “adjustment” triggered by central bank liquidity measures last week. Besides the inability to come up with a concrete solution to contain the sovereign debt crisis, Europe faces a potential recession. In addition, a loose monetary policy and a tight fiscal policy are likely to lead to a weak growth outlook over the near-term and into next year.
