A major development happened over the weekend that should have a boosting effect on the euro beyond what we’ve already seen. Bloomberg reported on Sunday that: European governments offered debt- burdened Greece a rescue package worth as much as 45 billion euros ($61 billion) at below-market interest rates as they try to end its fiscal crisis and restore confidence in the euro. But Greece says they will need a further 50 bln in the years ahead in addition to the EUR 30 bln offered up yesterday by the EU and IMF. The effect of this news produced one of the biggest gaps I ever seen in price action over the weekend. EUR/USD closed in NY on Friday at 1.3490 but after the news which I just mentioned above, the pair opened at 1.3590 in interbank trade, a 100 pip gap. The EUR/USD went on to rally higher during Asia and early Europe sessions to a high of 1.3699, but has steadily slipped farther down once European trading got up and running. Euro skeptics continue to pour out of the woodwork spurred on by a German government spokesman who said a summit agreement would be needed to activate aid to Greece. While the stand ready to help Greece, they seem to be extremely reluctant to actually do so. Clearly they are playing domestic politics here, but domestic politics also plays into the hands of the euro-skeptics. More than likely they are simply trying to keep the euro from recovering too strongly.
Speaking of a euro recovery, both technicals and fundamentals seem to be suggesting that we are preparing to enter a new bullish phase on the EUR/USD. Despite the 100 pip opening gap that I mentioned earlier, we still see less selling pressure than one would usually expect to see after such an opening. Also we have a double-bottom pattern in place on the EUR/USD charts with a possible move back up to the 1.3910 level. Double bottoms in EUR/USD and bullish breaks in AUD/USD and Gold after periods of consolidation, cannot be ignored and with all four taken together it really does look like we should be preparing ourselves for a bearish USD phase. My sources tell me breaks above .9410 in the AUD/USD and $1225 in the Gold price would even strengthen the bearish USD case. In cases where fundamental data conflicts with technical analysis, you must remain skeptical and choose you entries carefully, but always side with the technical analysis. Good luck to you all!
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