Monday, June 29, 2015

Euro opening gap was closed yesterday | Greece situation actually helped EUR/USD currency pair

Yesterday we pointed to the gap down at the weekly open of the Asian Forex trading session in EURUSD (see chart above). This was caused by a reflex reaction to the news that the Greek parliament had passed a resolution to allow a referendum to the held on the latest proposals for renewing that country’s bailout plan. This news was said to have ‘shocked’ the ECB, the EU Commission and the IMF.

We had noted previously that gaps such as this are often filled, which is to say that the exchange rate will quickly move back to where it was prior to the gap, even if such a move proves to be temporary.

Yesterday the pair performed in exactly this manner. In an almost textbook example of the phenomenon, the move up began in the early European session, and was reinforced after the open in New York. On the way the exchange rate exhibited resistance and support characteristics at the level of the 200 period Exponential Moving Average (EMA). It can be seen from the chart above that this acted initially as a barrier to the rise, the exchange rate having to make no less than three attempts to break through, and later as a support to prevent another fall.

Greece situation actually helped EUR/USD currency pair

In a nice example of the ironic, counter-intuitive nature of the Forex market, it seems that one of the factors contributing to what was a strong retracement of the EUR/USD currency pair yesterday was the deterioration in the situation of Greece, and its potential to create problems for the wider global economy. This last is one of the stated concerns of the US Federal Reserve, and was highlighted by Janet Yellen in her latest monetary policy statement as one of the things the committee is monitoring as it prepares for an eventual program of core interest rate rises.

Anything, but anything, that might tend to put back the day when said US interest rate rises start is calculated to hurt the Greenback. Therefore a perceived deterioration in Greece’s relationship with the Euro had the effect of raising the EURUSD pair yesterday (a rise in EURUSD means a weaker dollar).

That was then, this is now. Whether or not yesterday’s rise will continue remains to be seen.

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