2ND FEB - Dollar Euro is it a sell?
03 February 2012
TECHNICALS:
WEEKLY CHART
The market has long-completed a large and powerful bear Head and Shoulders pattern that is trying to send the Euro a lot weaker – at least as far as 1.13 or so.
But the initial completion move has been reversed - sharply – and the market is retesting the resistance from the Prior low at 1.3149 and the Neckline of the H&S pattern is more powerful resistance still… around 1.33.
DAILY CHART
Here is the detail: the market has achieved an exact 38.2% retracement, and in addition felt both the bearishness of the 1.3149 horizontal and the influence of the neckline.
All three have combined to put a lid on the rally.
But there has been no pull-back yet. Bears are clearly nervous of selling.
A break of any of the levels on the downside at the Fib levels of 1.3006, 1.2930 – might be useful triggers for the bears to begin selling….
FUNDANENTALS:
Late last year, as the US economic recovery began to show signs of picking up speed and the Euro zone seemed to be sleep-walking to a disorderly collapse, the Dollar rallied hard against the Euro.
Despite repeated attempts to rescue Greece and other weak peripheral economies, the news feed pointed one way - the eventual break up of the single currency driven by:
However, at a last-ditch summit that was meant to resolve the issue once and for all, Germany finally got her way, albeit without the support of the UK. A de facto fiscal Union is now the goal of 25 of the EU states. Budgetary controls enforceable by treaty are agreed and Greece continues to negotiate with her private creditors a deal designed to impose a 70% haircut on the Greek government debt, which is a default in all but name, but isn’t disorderly.
While there is no guarantee that yet more austerity will work, and that Greece will be able to agree a deal, the clock continues to tick towards a Greek default.
If Greece fails to get the agreement of her creditors, the Germans look set to block the next tranche of her rescue funds. Moreover Germany now wants Greece to cede budgetary control to a new EU budget commissioner which Greece says it will not accept.
Meanwhile traders have become optimistic that a deal to save the day is now more likely than not and the Euro has recovered a degree of lost ground against the Dollar.
But is this a reversal or a correction?
Lets examine the US side. The US economy has shown greater strength, but over the last few weeks data has cooled a little with Q4 GDP under-shooting consensus with the strongest component a worryingly larger-than-expected inventory build-up.
Last week’s FOMC meeting reiterated the Fed’s concerns about the outlook for US growth saying downside risks remain.
In fact, so concerned were US policy makers that they extended, by one year, the period they expect to hold rates at current lows and Bernanke said he has his finger on the trigger of a 3rd round of QE. All of this helped undermine the Dollar.
But we judge this to be mainly noise.
The US economy is recovering, just not as swiftly as policy makers would like and are used to. The Euro zone economy remains balanced on a knife edge and a Greek default which would likely start a domino effect within the Euro zone, cannot be ruled out and it looks questionable whether a policy of austerity without a growth plan will work.
On balance we judge a correction has occurred NOT A REVERSAL and the Dollar remains Bullish.
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03rd FEB - USD/CHF Slip Back Nearing First Supports 
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