Forex Magnum


EUR/USD Mid-Session Analysis for July 2, 2012

Autore: FX Empire Analyst - James Hyerczyk

The EUR/USD is giving back some of its massive gains from Friday at the mid-session. This is not a surprise since the size of Friday’s move put this currency pair into short-term overbought territory. 

A retracement of the 1.2432 to 1.2692 one-day range may actual be good for the Euro since it will help it establish a better constructed support base. Since the height of the market is usually determined by the length of the base, a solidly constructed support base may produce a better breakout rally. The first area to begin looking for possible support is 1.2562, followed by 1.2531. 

Daily EUR/USD Chart

Daily EUR/USD Chart

Since the main trend on the daily chart will remain down until the swing top at 1.2747 is taken out, any buying opportunities will be considered to be against the main trend. However, since the logical exit on a bad trade is 1.2407, traders may want to consider the risk/ reward ratio since a major 50% level at 1.2785 is the next potential upside target. 

While the technical analysis picture was indicating weakness due to overbought conditions, some traders were selling the Euro due to a weaker-than-expectedU.S.manufacturing report that was encouraging traders to seek the relative safety of the U.S. Dollar.   

The Euro also lost ground earlier in the session afterFinlandreportedly indicated it would block any efforts to use the Euro Region’s permanent rescue fund to buy distressed government debt. Speculation has also surfaced that the Netherlands have joined Finlandi n stating its objection to using the European Stability Mechanism (ESM) to buy these bonds in the secondary market. This incident only highlights the general hostility between northern Europe and southern Europe. 

Finally, some traders are exiting the Euro after the strong rally, choosing instead to stand aside until after Thursday’s European Central Bank meeting. It has been widely speculated that the ECB plans to cut its benchmark interest rate by at least a quarter point to 0.75%. This would bring it closer to theU.S., theU.K.and Japan. 

A cut in interest rates should help to ease the pressure on Euro Zone banks to borrow money directly from the central bank and may give a boost to last week’s decision to make it easier for ailing banks to receive financial aid. 

At the mid-session, optimistic Euro traders will be looking for a new place to buy now that the news has turned somewhat positive. This buy zone may be 1.2562 to 1.2531. If a secondary bottom is formed in this zone then an attempt may be made to change the main trend to up on a move through the last swing top at 1.2785.



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