2nd February 2012

UPDATE

Technical Fundamental

The Dollar Euro pause has good reason but is it a sell?

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1.6017 High

Dollar Euros pause has good reason but is it a sell?

Euro - US Dollar 1.53 1.52 1.51 1.50 1.49 1.48 1.47 1.46 1.45 1.44 1.43 1.42 1.41 1.40 1.39 1.38 1.37 1.36 1.35 1.34 1.33 1.32 1.31 1.30 1.29 1.28 1.27 1.26 1.25 1.24 1.23 1.22 1.21 1.20 1.19 1.18 1.17 1.16 Nov Dec 2012 Mar Apr

WEEKLY CHART
The market has long-completed a large and powerful bear Head and Shoulders pattern that is trying to send the Euro a lot weaker at least as far as 1.13 or so.

1.4941 High

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UPDATE Technical Fundamental

1.3149 Low

But the initial completion move has been reversed - sharply and the market is retesting the resistance from the Prior low at 1.3149 and the Neckline of the H&S pattern is more powerful resistance still around 1.33.

1.1880

Apr May Jun Jul Aug Sep

Nov Dec 2010

Mar Apr May Jun Jul

Aug Sep

Nov Dec 2011

Mar Apr MayJun Jul

Aug Sep

DAILY CHART
1.460 1.455 1.450 1.445 1.440 1.435 1.430 1.425 1.420 1.415 1.410 1.405 1.400 1.395 1.390 1.385 1.380 1.375 1.370 1.365 1.360 1.355 1.350 1.345 1.340 1.335 1.330 1.325 1.320 1.315 1.310 1.305 1.300 1.295 1.290 1.285 1.280 1.275 1.270 1.265 1.260 1.255 1.250

Euro - US Dollar

Diagonal from June 2010 low

Here is the detail: the market has achieved an exact 38.2% retracement, and in addition felt both the bearishness of the 1.3149 horizontal and the influence of the neckline. All three have combined to put a lid on the rally. But there has been no pull-back yet. Bears are clearly nervous of selling. A break of any of the levels on the downside at the Fib levels of 1.3006, 1.2930 might be useful triggers for the bears to begin selling.

Neckine

38.2%

1.3149 Low 38.2% 1.2950 Low 50.0% 61.8%

1.2628 Low

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Dollar Euros pause has good reason but is it a sell?

FUNDAMENTALS:
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Late last year, as the US economic recovery began to show signs of picking up speed and the Euro zone seemed to be sleep-walking to a disorderly collapse, the Dollar rallied hard against the Euro. Despite repeated attempts to rescue Greece and other weak peripheral economies, the news feed pointed one way - the eventual break up of the single currency driven by: 1. The inability of the Euro zone leaders to agree a formulae capable of resolving the debt crisis, 2. The reluctance of Germany to listen to any plan that didnt involve fiscal austerity, 3. Germanys refusal to allow the issue of Euro zone bonds, 4. The ECBs refusal to embark on quantum easing, and 5. A lack of a growth strategy to help Greece et al cut back debt, cut spending and raise taxes in a sustainable way, without needing yet another future bailout. However, at a last-ditch summit that was meant to resolve the issue once and for all, Germany finally got her way, albeit without the support of the UK. A de facto fiscal Union is now the goal of 25 of the EU states. Budgetary controls enforceable by treaty are agreed and Greece continues to negotiate with her private creditors a deal designed to impose a 70% haircut on the Greek government debt, which is a default in all but name, but isnt disorderly. While there is no guarantee that yet more austerity will work, and that Greece will be able to agree a deal, the clock continues to tick towards a Greek default. Authorised and regulated by the FSA

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Dollar Euros pause has good reason but is it a sell?

FUNDAMENTALS: CONTINUED
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If Greece fails to get the agreement of her creditors, the Germans look set to block the next tranche of her rescue funds. Moreover Germany now wants Greece to cede budgetary control to a new EU budget commissioner which Greece says it will not accept.

UPDATE Technical Fundamental

Meanwhile traders have become optimistic that a deal to save the day is now more likely than not and the Euro has recovered a degree of lost ground against the Dollar.
But is this a reversal or a correction? Lets examine the US side. The US economy has shown greater strength, but over the last few weeks data has cooled a little with Q4 GDP under-shooting consensus with the strongest component a worryingly larger-than-expected inventory build-up. Last weeks FOMC meeting reiterated the Feds concerns about the outlook for US growth saying downside risks remain. In fact, so concerned were US policy makers that they extended, by one year, the period they expect to hold rates at current lows and Bernanke said he has his finger on the trigger of a 3rd round of QE. All of this helped undermine the Dollar. But we judge this to be mainly noise. The US economy is recovering, just not as swiftly as policy makers would like and are used to. The Euro zone economy remains balanced on a knife edge and a Greek default which would likely start a domino effect within the Euro zone, cannot be ruled out and it looks questionable whether a policy of austerity without a growth plan will work. On balance we judge a correction has occurred NOT A REVERSAL and the Dollar Authorised and regulated remains Bullish. by the FSA

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