5th April - The Euro's vulnerability resurfaces
05 April 2012
TECHNICALS:
WEEKLY CHART
The market has failed to rally back above and stay above the neckline resistance of the large bear Head and Shoulders …
Note too the combined resistance from the falling diagonal – that has helped to repel the bulls.
So the big bear H&S Top remains intact.
The minimum move needless to say, is down a long way…..
DAILY CHART
The triple failure of the market to re-penetrate the neckline is revealing…
The possible H&S reversal is unmistakable.
Note first though the test of the rising diagonal …
If that breaks the test of the horizontal 1.3006 will also be the moment of truth for the bears….
WATCH 1.3006!
FUNDAMENTALS:
Since the Greek rescue deal was agreed, albeit after a tortuous period of negotiation, the Euro has enjoyed a reasonably robust correction, back from the lows reached mid-January when speculation about the Euro’s imminent break up was rife.
The correction was all the more impressive as it coincided with a strengthening of US economic data which, given the disparity between the US and Euro zone economies, should have favoured the Dollar.
But after a long period of Euro weakness, traders seized the Greek rescue deal as an opportunity to take profit and re-assess the outlook for the Euro, hence the correction.
And although the Dollar staged its own limited recovery through February into early March, driven by signs of stronger job creation and re-emerging concerns about the Euro zone debt crisis, it was snuffed out by comments from Fed Chairman Ben Bernanke.
At one point his remarks sounded as though the Fed might be open to yet another round of QE, and indeed, last week he noted in a speech that US economic growth needed to be much faster to create the volume of new jobs needed to bring down unemployment, which was taken to mean the Fed could still ease policy further.
But, despite the Dollar suffering a self inflicted wound, the Euro hasn’t been able to gain a clear advantage and again looks weak.
There are three reasons in our opinion for this:
In short, the Euro zone economy is either on the brink of, or already in recession as the austerity measures demanded by the Germans bite. The Greeks have already said that they will probably be back for more help in the not too distant future as the economy continues to contract.
Similarly Italy is struggling to get through needed labour market reforms to bring about a recovery. Spain too has seen her unemployment rate climb to about 1/3 of the working population and there are fears that the austerity measures she has adopted will consign the economy to years of contraction.
Elsewhere in the Euro zone periphery the picture looks similar and a new phase of the debt crisis can not be far off.
But in the US the ISM surveys released this week show an economy clearly embarked on recovery, and if Friday’s non-farm payroll report shows the pace of new job creation at least being maintained or accelerating, the Dollar should rally further.
Currency trading isn’t about absolutes but changes in relatives and currently we judge the Dollar has most of them in its favour.
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05th Apr - EUR/GBP Bears Still In Control 
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04th APR - Gold Pullback Struggling To Find Support