June Euro Set For Upside Breakout

The June euro fought back after a weak start to finish higher for the week and in a position to break out above a major downtrending Gann angle and retracement zone resistance cluster. Once the single currency advances past this resistance, it will be in a position to test the main top at 1.3494 from February 24.

Two weeks ago, the euro found support at 1.3009 on March 15. This price was squarely inside the retracement zone created by the 1.2645 to 1.3494 trading range. In addition, an uptrending Gann angle provided support at 1.3005. This angle moves up to 1.3085 this week and remains key support.

Based on the short-term range of 1.3494 to 1.3009, a retracement zone has formed at 1.3252 to 1.3309. Last week the market regained the first level or 50 percent price, but fell short of the second level or 61.8 percent level. In addition, a downtrending Gann angle provided resistance at 1.3298.

This week the retracement zone remains the same, but the downtrending Gann angle drops down to 1.3258. This forms a tight resistance cluster that could prevent the Euro from rallying, but because of the strong close, is likely to be a breakout zone.

In order for this breakout to occur, upside momentum must continue. High volatility and rising volume would be good signs that traders are supporting the move. Once the market clears this resistance cluster then look for it to become support. If support can form then the euro will be in a strong position to test the February top at 1.3494 over the near-term.

Traders should keep in mind that upside momentum is the key. If buyers don’t show up with confidence and clarity then the euro may retrace to the downside once again to retest the support cluster formed by the uptrending Gann angle at 1.3085 and the retracement zone at 1.3070 to 1.2969.

Fundamentally, pressure eased on the euro after the European Central Bank last month boosted liquidity through three-year loans to banks and after the European Union leaders finalized a second Greek bailout package. Although there have been some glitches the past two weeks because of speculation that the U.S. economy was improving, the euro has recovered and appears to have regained the course set forth by January’s monthly reversal to the upside.

Although the risks of contagion have been limited, they could flare up fairly quickly if sovereign debt problems in Spain reignite a crisis in Europe. This week, euro zone ministers will be preparing a deal to bolster the region’s financial firewall. Any problems in hammering out this deal could derail the euro’s anticipated breakout rally.