The Euro Story Comes Back into Focus
Initially it was easy to see why the euro would benefit from the fiscal cliff deal but in reality the deeper you dig, it’s just a reprieve. That has not stopped the relief rally in the U.S. equities through. The fact that the cliff has relentlessly dominated trading going into the year’s end now means that traders can look beyond the cliff and that brings the euro into focus today. Euro-zone manufacturing contracted in December with Germany being one of the bleaker spots after a downward revision. All the news that traders were willing to push aside because of the cliff volatility is back…
The factors that are rallying the euro are both tangible but external: A strong Chinese PMI and U.S. PMI print helped increase global risk appetite but the euro has little bullish news of its own. Case in point: German manufacturing has contracted for the 10th month in a row.
Past performance is not indicative of future results
Technically – based on the 20 period SMA close support and the upward angle of the 34EMA Wave – the daily EUR/USD shows a bullish Directional Bias so weakness above 1.3080 to 1.3000 would likely continue to be viewed as a correction and not an all-out trend reversal. Based upon the previous May 1, 2012 high, the EUR/USD has reached the area from which it reversed which means there is plenty of selling pressure possibly waiting there again. The euro fundamentals support a near-term bearing outlook and without an extended relief rally, the risk appetite could fade.
There is of course the swing buy on the daily chart that is waiting between the 20 period SMA close and 34 period EMA high but shorter-term traders may like the potential swing short that is setting up on the 30-minute chart knowing that if the EUR/USD surges higher again, a Wave Reversal long could trigger a buy above the 34 period EMA high with a +100 CCI reading.
And by the way, the Dow's daily congestion market trend does not (technically) bode well for a continued rally and IF this is what is driving today's greenback weakness (and thus any EUR/USD strength), the euro may not be able to take advantage of this much longer and the EUR/USD could correct lower still.
As an active forex trader and Chief Currency Analyst for IBFX.com I do write for a number of sites all over the web and I am happy to say that I will be posting updates at www.IBFXconnect.com. My Activity Board will feature the trades from my trading account as well as intraday commentary.
Start the discussion! Questions? Comments. Leave it here at the Daily Forex Trading Edge for Raghee to personally answer. Using the icons at the top of the article to forward this update to a friend via email, post it on Google or Facebook or simply print it out for reading later.
Forex trading is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions. The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose.