Daily June Euro Futures Chart Pattern Recap

Tuesday’s closing price reversal top in the Daily June Euro was a sign that the sellers finally took control of the single currency and that buyers were most likely ready to abandon the upside. Wednesday’s volatile sell-off did not come as a surprise since price and time analysis earlier in the week almost pinpointed when and where the market was going to breakout although I was still not sure of the direction.

Early during Wednesday’s session, not only did the Euro trade to the bearish side of a major 50% price level at 1.3247, but it also took out uptrending Gann angle support at 1.3200. Once this area was violated, the market was free to trade through Tuesday’s low at 1.3207.
 
The short-term range of 1.3000 to 1.3287 created a retracement zone at 1.3144 to 1.3110. This area was successfully tested on Wednesday. Additional support was provided by the uptrending Gann angle at 1.3120. Since the main trend is up, this may be a buying zone for some, but because of the fast break, any “technical bounce” in this area is likely to be caused by profit-taking and short-covering ahead of Thursday’s European Central Bank meeting.
 
Fundamentally, the June Euro futures contract plummeted after reports said manufacturing slumped and unemployment rose to match a record high in March. German Bund futures soared to a record high of 141.69, reflecting investor concern that the slowdown would continue to sweep the Euro Zone and hit major economic centers such as France and Germany.
 
Economic downturns in Italy and Spain continued to send worries throughout the region while week-end elections in Greece and France created additional turmoil that weighed on the minds of traders. Investors now fear that plethora of negative news will drive the Euro through the key 1.3000 area, perhaps setting off a string of orders that could trigger an acceleration to the downside.

On Thursday the European Central Bank will meet amid growing pressure that the central bank will be forced to use bond buying as a measure to protect the Euro nation from additional economic weakness. Talk is circulating that the ECB may even consider cutting its benchmark interest rate soon. This action would weaken the Euro further as it would remove the region’s interest rate differential advantage. Even if the central bank leaves interest rates unchanged, ECB President Draghi’s post-meeting news conference will be watched carefully for signs of additional decisive actions.
 
Since the Euro stopped inside of a major retracement zone at 1.3144 to 1.3110, it is possible we could see a technical bounce back up to 1.3206 – 1.3225. Bearish traders will try to form a secondary lower top in this zone to set up the next down draft while bullish traders will try to push the market higher in an attempt to regain the recently lost ground. The direction is likely to be determined by the actions of the European Central Bank and President Draghi on Thursday.