13th December- Watch the Euro's strength trigger more buying
17 December 2012
TECHNICALS:
WEEKLY CHART
The market is on the point of completing a H&S reversal….Look for a weekly close above 1.3050 or so…
In that event the minimum likely move would be up as far as 1.42.
Note that the completion of the H&S reversal would coincide with a break of the long run falling bear trend diagonal
DAILY CHART
That H&S reversal in greater detail.
Note the possible 2nd H&S reversal
Where is the neckline? Slightly above the weekly Neckline 1 at 1.3128.
A break of both Necklines would be a compelling bull case for more Euro weakening. In that case stops would be beneath 1.2850
FUNDAMENTALS:
The seesaw relationship between Dollar/Euro has lasted for several months and looks likely to extend further, or will it.
Throughout the Autumn the price action in Dollar/Euro has been driven mainly by US developments. In the Euro zone the Economy remains in recession, the ECB looks set to ease interest rates further and along with the Bundesbank ,has revised the growth forecast for the Euro zone and Germanyl ower .
The credit crisis remains very much a live issue with the leaders of the EU meeting to decide whether the ECB should become the principle Banking sector regulator, a move intended to shore up the Euro and meant to help resolve the crisis.
But only this week markets were thrown into confusion when Italian Prime minister Mario Monti announced his intention to resign once the 2013 budget law is passed and if that wasn’t enough, former Prime minister Berlusconi announced his intention to stand for Prime minister once more, despite the scandal that helped drive him from office, sending Italian bond yields soaring.
Clearly, if Dollar/Euro was driven by Euro zone events, the Euro would be much weaker.
But traders are focussed more on the Dollar. Initially, traders were focussed on the outcome of the Presidential election and the actions of the Fed, as it tried to revive the economy, with the state of US public finances on the back burner until the Presidential elections were over.
Now that Obama has won a second term, markets are focussed on the fiscal position of the US and principally the fiscal cliff. The Fed Chairman has made it clear the Fed does not have the tools to shield the economy from the recessionary consequences of going over the cliff.
The US administration, via the Treasury Secretary, has made it clear they are perfectly willing to go over the cliff if an agreement cannot be reached with the House Republicans, but that is only part of the story, the US budget deficit requires serious attention as the debt to GDP ratio approaches 100%.
The Dollar is reacting to the ebb and flow of news relating to the progress, or more accurately, lack of progress of the negotiations between the Republicans and the President.
Add in the growing sense of unease that is creeping into markets concerning the Feds conduct of monetary policy, particularly QE, and the Dollar looks likely to weaken further.
What rattles traders currently are the following :
For the Dollar this means vulnerability to the downside, especially against the Euro despite the very real problems still confronting the Euro zone..
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13th Dec - USD/CHF Stuck Around Fibonacci Support