EUR/USD Setting Up for Volatile Trade

The EUR/USD rebounded after a sharp intra-day sell-off threatened to wreck its newly formed support base. The Forex pair continues to be event driven as investors await the final decision on aid for Greece. 

During today’s session, Euro Zone finance ministers and International Monetary Fund officials once again failed to reach a deal on aid to Greece. This triggered a vicious break into a retracement zone near 1.2744 to 1.2725. The ensuing rally which followed this move may have been fueled by aggressive short-covering ahead of Thursday’s U.S. Thanksgiving holiday. 

The bottom fell out of the market after officials broke up a 12 hour meeting without an agreement on how to deal with Greece. But the fact that the meeting was rescheduled for Monday triggered a return to optimism. The hard break and the subsequent reversal are precursors to the type of trading investors should expect should a deal be reached or not. 

The GBP/USD rebounded after trading weaker in tandem with the break in the Euro. But like the Euro, the Sterling was able to reverse course and breakout slightly to the upside. Some of the strength in the British Pound was attributed to the minutes of the Bank of England’s November meeting. The central bank voted 8 – 1 to stop expanding its asset buyback program. The majority’s belief that the program’s impact was being diminished by uncertainty among consumers was probably the main reason for the central bank’s curtailing of the stimulus. 

January Crude Oil traded higher as hopes of an end to the conflict between Israel and Hamas dimmed. Speculative traders are once again taking long positions in anticipation of a possible disruption in oil supply. Earlier in the week, an attempt to breakout to the upside failed which was a demonstration of just how sensitive the market is to its bearish supply and demand situation. 

The traditional fundamentals remain decisively bearish because supply is simply too high. The wildcard is the situation in the Gaza Strip. Speculators anticipating a disruption in supply are supporting prices, but the traditional supply/demand trader is holding tight on his assessment. This is making for a rangebound market. Technically, the short-term range is $89.67 to $84.53. The pivot price is $87.10. This price is essentially controlling the short-term direction of the market. Crude oil traders may try to build support above it, but remains vulnerable under it. 

December Gold finished lower. Traders remain reluctant to buy strength in this market, helping to form solid resistance between $1735.30 and $1739.40.  On the downside, $1704.50 remains solid support. The confusion in the gold market is over its characteristic as a safe haven investment and as an investment. With money flowing into equity markets, demand is down. If the situation escalates in the Gaza Strip then look for gold to catch a bid and rally over the near-term.