EUR/USD Mid-Session Analysis for July 9, 2012

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The EUR/USD is struggling to hold on to its small gain at the mid-session as investors face mounting pressure from rising interest rates in Spain becomes clear that conditions are worsening in the Euro Zone. 

At this time, European regional finance ministers are meeting inBrusselsto discuss the European debt crisis. Traders remain sensitive to the news coming out of this meeting as evidenced by today’s reversal to the upside on the news that future capitalizations of banks by rescue funds wouldn’t require government guarantees. 

Investors seemed to like this news since it should ultimately speed up the process of shoring up the Euro Zone banking system. One of the biggest criticisms during the whole Euro crisis has been the lack of urgency from the officials calling the shots. Meeting after meeting has produced a lot of talk but very little action. 

Daily EUR/USD Chart

Daily EUR/USD Chart

Initially, the Euro fell versus the Dollar on worries that European finance ministers would fail in reaching a plan to stem the weakness in the Euro Zone. Spanish and Italian bonds fell as yields rose as investors expressed their concerns in the marketplace. Later in the session, these worries were quelled when news surfaced that the recapitalizations of banks by the European Stability Mechanism will not need a sovereign guarantee. 

Also at the meeting in Brussels, European Central Bank President Mario Draghi reiterated his stance from last week that further interest rate cuts will depend on the data and economic environment. He also added that the ECB would “do everything to maintain price stability from both sides in the Euro area.”  This was no surprise as this is the ECB’s mandate. 

This morning’s news was enough to stabilize the Euro, but hardly enough to cause a bottom to form or the trend to change to up. Many traders feel that positive expectations from the meeting are providing temporary relief to the Euro although oversold conditions are likely to be the biggest influence rather than a shift in sentiment. 

Bearish traders remain focused on the June 2010 bottom at 1.1876 and won’t even consider the upside until 1.2747 is taken out. Additionally, traders remember the over 1% rally on June 29 that wasn’t even enough to turn the trend higher. 

Traders shouldn’t expect any significant upside action this week but the market may rally at times to reflect position squaring and short-covering. Since the main trend is down and the fundamentals are bearish, traders are likely going to treat every rally as the next shorting opportunity. 

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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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