Euro Bulls Taking a Breather

The Euro was pressured early in the trading session after almost reaching a three-month high last week against the U.S. Dollar. Bullish traders seem to be taking a break after last week’s release of a plan by the European Central Bank’s plan to buy bonds. Additionally, skeptical investors are expressing concern that the debt crisis is still a threat to the Euro Region. 

One factor affecting the Euro was the failure by the Greek coalition to reach a deal on 11.5 billion Euros of spending cuts. Furthermore, later this week, a German court is expected to rule on its participation inEurope’s permanent bailout fund.

Some traders are putting the blame on overbought technical conditions after last week’s sizable rally. The lack of clarity and exposure to event risk this week because of the U.S. Federal Reserve meeting are also encouraging investors to take a cautious stance.

The Euro has seen limited upside action today after European Central Bank President Mario Draghi fueled a sharp rise in the currency last week when he said the central bank would make potentially unlimited purchases of government bonds from distressed countries. Despite the weakness, the currency is being underpinned by the possibility of additional stimulus from the U.S. Federal Reserve.

Contributing to the uncertainty is the expected ruling byGermany’sConstitutional Courtregarding challenges to the country’s participation in the European Stability Mechanism, or the ESM.

The GBP/USD is showing a slight upward bias in a follow-through rally after Friday’s surge was triggered by a weaker-than-expected U.S. Non-Farm Payrolls report. Traders are now shifting their focus on this week’s Federal Open Market Committee decision which could decide the fate of the dollar. This decision will take center stage because the Committee may give more clues as to when the central bank will begin another round of quantitative easing.

The lack of fresh fundamental news and a slightly better U.S. Dollar is holding November crude oil in check. Traders have not been kind to crude oil lately despite the weaker Greenback. Last Friday’s poor employment report suggests a weakening economy which could curtail demand for crude oil. This week’s supply and demand report along with the Fed announcement are likely to move the market. Until then volume could be light and trading activity reduced. 

December Gold bulls are taking a break following Friday’s massive rally. Technically overbought conditions are one of the reasons for today’s weakness. Some traders are paring positions ahead of this week’s Fed meeting as they await more information regarding the impending decision to implement another round of stimulus. The lack of clarity is likely to keep traders on the sidelines for a day or two. 

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James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.

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