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