Euro Ends Roller Coaster Session Higher

The EUR/USD posted a volatile session on Tuesday before closing slightly better. The initial move was to the upside to 1.3371 in a challenge of last week’s high at 1.3403. The subsequent sell-off triggered a sharp intraday break to the session low at 1.3266. From there the market ricocheted back up to 1.3367 before fresh selling pressure drove it back toward the low of the day. 

While hovering near the high of the session last night, a rumor hit the market that the ECB’s Jens Weidmann had resigned. Besides working with the ECB, Weidmann is also the Bundesbank President. He is most known for his opposition to the central bank’s OMT bond purchase program. 

The Euro immediately fell against the dollar on the rumor, triggering a sharp break to the low of the session at 1.3366 before rebounding when Bundesbank denied the rumor by calling it ‘garbage’. 

The Euro then mounted a huge rally on the news that ZEW issued a report showing the highest economic sentiment in 2 ½ years in the January survey. The report not only triggered a massive short-covering rally back near the high of the day, but it also led to speculation that Bundesbank would revive its German growth forecast. 

Despite the intraday sell-off, the Euro was underpinned by a favorable Spanish 6-month bill auction. Yields plunged from 1.609% in December to 0.888% and the 2.8 billion Euro sales exceeded the 2.5 billion maximum target. This was another sign of stability in the region. 

Short-covering drove the GBP/USD higher after the Sterling failed to take out yesterday’s low at 1.5805. The subsequent intraday rally has the market in a position to take out Monday’s high at 1.5893. Oversold conditions are most likely the biggest contributor to the intraday rally although position squaring ahead of tonight’s speech by Bank of England Governor King also contributed to the boost in prices. 

King is expected to talk about the U.K. fourth quarter GDP which is expected to be lower. Talk is also circulating the Prime Minister Cameron is expected to speak about the possibility of the U.K. leaving the European Union. Speculators have been betting lately that a weaker GDP figure will leave the BoE no choice but to renew its asset buyback program, a move that is perceived as bearish for the economy. 

February gold futures improved almost immediately on the rally in the Euro, but backed off slightly to close a few dollars lower. The market has been consolidating the past few days after changing the daily trend to up. Technical analysis is indicating the formation of a triangle chart pattern. If upside momentum continues, the market may breakout over the top end of the triangle near $1700.00. This could trigger a massive short-covering rally. 

The weaker U.S. Dollar is contributing to the strength in the crude oil market. Additionally, March crude oil is trading on the bullish side of a major Fibonacci price level at $95.70, adding further to the possibility of an upward price spike. 

The announcement of an aggressive stimulus program by the Bank of Japan is giving crude oil a boost as it could lead to greater demand.