Euro Tumbles on Expectations of Weaker Economy

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The EUR/USD finished sharply lower after a weaker-than-expected purchasing managers’ index for the Euro Zone and Germany’s Ifo business-confidence index highlighted the possibility of a worsening economic climate. The news pressured the Euro against most major currencies. The slide against the U.S. Dollar pushed the single-currency to its lowest level in more than a week. 

Although the latest numbers to come out of Germany were disappointing, the Euro was able to rebound slightly as talks resumed between Euro Zone officials and Greece. Reports are surfacing that officials from the European Union, European Central Bank and the International Monetary Fund rejected Germany’s proposal to tighten Greece’s access to the established financial aid account. With this proposal out of the way, the market is pricing in the possibility that Greece will eventually get its next tranche of aid. 

Speculative buying and short-covering helped drive the GBP/USD higher on optimism the U.K.economy pulled out of recession in the third quarter. Bullish investors perceived this news as a sign that quantitative easing and austerity measures are finally steering the economy in a positive direction. Tomorrow’s GDP report is expected to show that the U.K. economy expanded by 0.6 percent last quarter. Unless the GDP report exceeds expectations, the current rally should be short-lived. Technically, the market is firmly entrenched in a downtrend. 

The stronger U.S. Dollar continued to encourage December gold traders to play the short-side as the leading precious metal seeks to find a value-zone. With the main trend down and the fundamentals shifting away from an inflationary environment due to the weakness in the global economy, oversold conditions and speculative bottom-picking may be the only reasons to even consider the long side. 

Technically, the short-term range is $1647.10 to $1798.10. This range represents the rally from late August to early September that was fueled by fresh quantitative easing by the U.S. Federal Reserve. Currently, December gold is testing 61.8% of this range at $1704.78. A move through this level could trigger additional downside momentum which could flush out weak longs. The main range of $1535.40 to $1798.10 takes in to consider the entire stimulus move from May to October. The downside target of this range and key target price is $1666.75. A test of this level could attract buyers as it would represent 50% of a major range and a value-area. 

December crude oil prices continued to tumble on Wednesday on the strength of the U.S. Dollar and the release of a bearish inventory report. Short-sellers are pounding the market, looking to trigger stops under $87.00, after a weekly U.S. government report showed oil supplies rose more-than-expected last week. The EIA said in its weekly report that U.S. crude oil inventories increased by 5.9 million barrels in the week-ended October 19, compared to pre-report estimates for a 1.9 million barrel increase. 

Finally, financial markets could react to this afternoon after the Federal Open Market Committee concludes its two-day meeting. The Fed’s policy statement will be watched closely to see if there have been any changes in the language from last month’s meeting which included the announcement of the Fed’s plan to buy $40 billion in mortgage-backed securities. 

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About: FX Empire Analyst - James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.

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