STRATEGY
FX
The Euro was unable to rally following ECb President Trichet’s hawkish comments on June 9th in which he used the term “strong vigilance”.
The most recent price action seen during the end of May and beginning of June is corrective, though it was a bit stronger than we expected, it too was followed by a dollar rally that is currently testing the 50% retracement level and mid May resistance levels. We’re nearing a very important time in which the market must decide direction of the euro. Supporting our view for a stronger dollar is that the euro was unable to rally following ECB President Trichet’s hawkish comments on June 9th in which he used the term “strong vigilance”, implying that a rate hike during the next ECB meeting was likely. Knowing that market participants dissect each and every word of his statement, he continued to say that the ECB is never pre-committed. This was the turning point at which most realized that the risks within the EuroZone are now too much to bear, even an increase in interest rates wasn’t enough to justify a bullish outlook on the euro as it was now becoming uncertain due to the slow economic progress of some
of the EZ member states.
Being a good trader means one must accept when an analysis is wrong (or early) and adapt to the trading environment. We too, have a scenario in which the euro may find an opportunity to form a last ditch effort rally. First, a break of the June 8th pivot high will be necessary to retest the 1.4950 level set 4th of May. Once this level is reached, a daily close above the figure should continue to test the 1.50s and maybe even the summer of 2008 highs near the 1.60 level. This should only be possible if Greece avoids a debt restructuring while making good on the promises to cut the budget deficit using further austerity measures; all of this must coincide with a global economic recovery. We don’t see this as a likely scenario and will remain in the risk- averse camp until we see real change.
Alex Kazmarck FX TRADER MAGAZINE July - September 2011 47
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