Monday's rally was impressive but when it came to following-through to the upside, this morning's weakness is strong evidence that the Euro is still in the hands of the short-sellers. The short-term picture shows that the market isn't even strong enough to fill the Friday to Monday gap at 1.3082 to 1.3068. The bigger picture shows a market that is testing the bottom end of a major retracement zone at 1.2969 and a top at 1.3070. The longer the Euro spends inside of this zone the greater the likelihood of a volatile breakout.
Besides the 50% level at 1.3070, the downtrending angle from the 1.3287 top is providing resistance at 1.3087. While not actually being touched to confirm it as a resistance angle, its presence is likely to act as a guide to the downside. Additionally, crossing to the weakside of a slow-moving uptrending Gann angle at 1.3045 is also an indication of dominant selling pressure.
Once again short-traders appear to have the power behind them to drive through the key 1.3000 level. Perhaps this time because of last night's failed follow-through rally, buyers will be willing to give up their defense of this level, allowing the Euro to seek a new value area.
Fundamentally, with negative news from Europe beginning to pile up, it is hard to be anything but bearish. Two key issues pressuring the Euro are worries that a new government in Greece will speed up its move to withdraw from the Euro Zone and the possibility of a strained relationship between France and Germany. On a positive note, rumors that Spain may be engaging in talks to create a domestic bank-recapitalization program could underpin the Euro or at least slowdown the rate of its decline.
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