Wednesday, July 11, 2012

Euro Falls As ECB Cuts Deposit Rates

With the ECB dropping deposit rates to 0.0% starting today, the question among Forex traders is whether the central bank is purposely trying to weaken the Euro.  The effects were seen in yesterday’s Forex trading as the Euro was lost against all major currencies.  The EURUSD hit another 2012 low as it traded to 1.2225, while the EURGBP fell below 0.7900, its lowest level since 2008.  Also, of significance was the EURAUD which traded below 1.2000 today.  Even though the Aussie would be considered as a risky holding during the current risk selling environment, the positive carry rate for being short the EURAUD has triggered selling pressure to accelerate.

Looking ahead, eyes continue to be on the EU.  Today’s news is that Spain is pushing ahead to reduce 65 billion Euros from its budget while raising VAT taxes by 3.0% in an effort to undertake further austerity and reduce its debts.  While the measures do address Spain’s debt problems, the actions are expected to drive another stake in the country’s already astronomic unemployment rate.  So far the news hasn’t had much if any effect on the Forex markets as we are trading sideways this morning. 
EURAUD Keeps Falling

You won’t find too many buyers in the Euro.  Usually such one sided sentiment could be indicative of a potential reversal ready to take place.  However, since falling below 1.3000 in May, the EURUSD’s rallies have shown to be short lived.  As such, the pair has flushed out long term holders and the only buyers are of the short term variety.  Therefore, with buyers being unwilling to step up and provide meaningful support for the EURUSD, today’s focus is on yesterday’s low of 1.2225, as a break below this level will be expected to trigger further aggressive selling pressure.  Another potential trade will be shorting the pair on any rallies above 1.2300.

Intraday Support/Resistance 1.2225/1.2340


While looking weaker in last week’s trading as it dropped over 250 pips from above 1.5700, the GBPUSD found support at its longer term support level of 1.5450.  Since holding that level, demand has resurfaced in the pair with the GBPUSD making a move to climb above its 1.5550 resistance level.  Looking ahead, if the GBPUSD can trade and hold above 1.5550 today, it could set up further momentum for the rest of the week.

Intraday Support/Resistance 1.5450/1.5555

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