Good Morning, Friends, Yes, even the poor, beleaguered Euro is having an upside day. The FX market, although convinced that short was fundamentally and technically the correct way to go, was on hair-trigger alert for any positive news from the EU Summit. There will be arguments as to whether the policy decisions were correct, or timely, but there were decisions (to jointly recapitalize Spain’s banks), and that was enough to generate a ferocious short-covering rally.
Most of the institutional investors to whom I speak are inclined to look at this asÂ a selling opportunity, but positions (and P&Ls) have been damaged, and the market is likely to beÂ a more cautious, two-way affair in the near term. On the daily chart, the downtrend remains very much in place;Â patience may be rewarded, as a move back to the 50% retracementÂ just below 1.28Â looks like a potential spot to go short EUR/USD with a decent risk reward. A move from that level back above 1.29 would probably cause me to bail, but a move covering at least half the distance to the previous low – a target of roughly 1.2540 – would be the expected outcome.
It wouldn’t be at all surprising to get some skittish action along the way; this will continue to be a headline-driven market, and the stars won’t necessarily all be in alignment at all times. The Euro does continue to face plenty of headwinds, however, and many investors will continue to favor the Dollar. As the old saying goes, “If you liked ’em (short) at 1.23, you’ve gotta love ’em at 1.27.”
Have a great weekend (and Todd, have a great vacation week!).
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