September Euro Gaps Lower To Start The Week

For several days last week, it looked as if the September euro was trying to form a bottom. The single-currency was actually appreciating, not because investors wanted the euro, but because the U.S. Dollar was weakening on the thought that the Federal Reserve was preparing another round of stimulus. With this idea gaining momentum throughout the week, more and more shorts started to pack it in and move to the sidelines. For a short-time last week, the European debt and banking crises were off the minds of traders.

That’s the way it was until Friday, when a key Spanish interest rate crept back above 7%, refueling the thought that the banking problems were not going away. With the euro finishing in a weak position to end the week, most short traders went home with the feeling that there was enough downside momentum in the market to drive the euro even lower this week. This thought was affirmed when over the week-end came the news that the International Monetary Fund was set to stop aid for Greece. This was a huge blow to the country trying to get back on its feet because it could push the debt-stricken nation into bankruptcy.


Technically, the weekly Nearby euro futures chart shows no sign of bottoming. The nearest swing top is 1.2759. Only a breakout through this level will turn the main trend to up. The single-currency is also walking down a downtrending Gann angle from the 1.4925 top. This angle is at 1.2365 this week. If the euro continues to move down at a pace of .004 per week, it should reach the June 2010 bottom at 1.1849 by late October.

Overnight the euro gapped lower on the opening, demonstrating pent-up selling pressure and an immediate reaction to the bearish IMF/Greece news released over the week-end. Downside momentum could pick up throughout the day with the only hope of a rally coming after the market reaches a technically oversold level.