EUR/USD Mid-Session Analysis for July 18, 2012

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The EUR/USD is mounting a comeback at the mid-session after trading down to 1.2216 earlier in the session. The earlier never threatened the low for the week, but did come close to taking out a short-term retracement level. With the Forex pair picking up a little strength, it looks as if the intraday break was corrective in nature and may have set up a buying opportunity for counter-trend traders.

Currently, the trading range is inside of yesterday’s action. If the market finishes this way, Thursday could be a volatile session since breakout opportunities are being created on both sides of the market.

The short-term range is 1.2162 to 1.2316 with a retracement zone at 1.2239 to 1.2221. This area was tested early in the session at 1.2216. The long-term range is 1.2747 to 1.2162. This range creates a retracement zone at 1.2454 to 1.2523. In order to reach this potential upside target, the market will have to break through a downtrending Gann angle at 1.2307 today. Once this occurs, the main trend will continue to remain down, however, there may be enough momentum generated to produce a rally into the target zone.

Daily EUR/USD Chart

Daily EUR/USD Chart

The early weakness in the EUR/USD was triggered by a comment from German Chancellor Angela Merkel who said, “We have not yet shaped the European project so that we can be sure that everything will turn out well, we still have work to do.” These words shook up Euro investors who felt that she was predicting its demise.  Later she added that she was “optimistic that we will succeed,” which softened her previous comment.

Although the Euro was able to rebound after these comments, it has been unable to turn positive on the day. Federal Reserve Chairman Ben Bernanke did nothing to soothe the market as he once again gave no indication that the Fed was about to implement additional stimulus to revive the U.S. economy. In his prepared speech he reiterated his comments from the previous day, saying that the economy remains weak and that the Fed would consider taking further action if unemployment remains high.

Any stimulus action by the Fed will weaken the dollar which could trigger the anticipated breakout rally in the Euro. Fundamentally, the Euro continues to remain weak because of the existing sovereign debt problems. Although there are continuing efforts to work out a solution to the debt and banking issues, the longer-term view of the Euro suggests it is headed for 1.1876. Any stimulus move by the Fed would trigger a short-term rally in the Euro against the dollar, but not necessarily a change in the longer-term down trend. 

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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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