French Rescue Plan Leads to Euro Turnaround – EUR USD June 27, 2011 |
The EUR USD traded in both directions on Monday before finishing higher. Trader uncertainty and nervousness ahead of this week’s key austerity vote in the Greece Parliament kept many investors on the sidelines.
Based on the current trading activity, it appears that investors have drawn their lines in the sand. 1.4442 is the upper boundary and 1.4073 is the lower boundary. Trades through either one of these levels are likely to trigger volatile moves.
Early in the trading session the Euro was under pressure. This was a follow-through move to the sell-off which began late last week, leading to the weak close on Friday.
The sources of the downside pressure were worries that opposition to the austerity measures was gaining strength, leading to speculation that the proposal would have a hard time passing Parliament.
Shortly before the New York opening the Euro began to stabilize while safe-haven currencies such as the U.S. Dollar and Swiss Franc began to weaken. This trading activity was an early sign that perhaps sentiment was shifting toward a positive outcome in Greece and that risk was back on, meaning traders were willing to buy the Euro.
At issue with the Greek Parliament are austerity measures needed to secure a 12 billion Euro tranche of aid and to make Greece eligible for further bailout packages from the European Union and the International Monetary Fund.
With the threat of default looming, Greece has been backed into a corner, however, today’s market action seems to be suggesting that a solution may be in the works.
Coming to the rescue and playing a major part in today’s turnaround in the Euro was the French government. Throughout the day, the Euro firmed on reports that France’s President Nicolas Sarkozy was backing a French plan to extend the maturity of Greek bonds due in coming years. The intent of the French proposal was to take the burden off of Greece and the EU governments and shift it to the private sector.
To recap the key fundamentals, the inability to break the Euro through a pair of recent bottoms and the turnaround on Monday are two signs of bottoming action. The source of the market’s strength is favorable bond concessions by France.
Technically, Monday’s reversal up is a strong sign that the Euro is getting ready to pop to the upside. A follow-through rally overnight through 1.4293 will confirm the low at 1.4102. This will give the EUR USD the appearance of a double-bottom at 1.4073 and 1.4102.
A breakout through the swing top at 1.4442 will not only confirm the double-bottom, but also reaffirm the current uptrend.
Besides the two swing bottoms at 1.4073 and 1.3969, long-term uptrending Gann angle support is also at 1.4083. This angle appears to be controlling the long-term direction of the market while offering key support. On the upside, 1.4454 to 1.4569 remain an important target zone.
About the author: Forex Mansion Analyst - James Hyerczyk
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