More Problems for the Euro!
January 21st, 2010 | Author: admin
The Euro (EUR) is down again today against the US dollar (USD) and looks ready to test support at 1.42. The problems in Greece may have a carry-over effect which will diminish the Euro as a viable alternative to the US dollar.

The problem in the Euro Zone is two-fold: either the other Euro nations come to Greece’s aid and bail them out which will in turn send the wrong message to the other PIIGS countries, or they allow Greece to exit and risk possible defaults as credit spreads widen because of the increased risk. Either way, the solution for the Euro is not easily rectified and how this plays out will be interesting to say the least.

In either event, I expect continued Euro weakness and if the Euro breaks psychological support at 1.42, then the next stop could be 1.382, back to its 50% retracement levels against the US dollar.

Because of the lack of viable alternatives to the Euro, the British pound (GBP) is seeing some strength today, up across the board against all other currencies.

Until clarity emerges from the Euro situation, the pound appears to be ready to strengthen against the Euro.

Let’s look at 2 quick charts: (click charts to enlarge)



The first chart is of EUR/USD and illustrates the different Fibonacci levels which can act as support or resistance within larger trends. When trends reverse, these levels an act as “magnets”– pushing the prices toward those levels. So if the problems with the Euro persist, then keep an eye on these levels.

The second chart is of EUR/GBP and it shows the current action of the Pound vs. the Euro. The pound provides a viable alternative to the Euro, so even though the UK has their own set of problems, the market may deem the Euro’s to be worse so I’m expecting continued pound strength against the Euro. I’m looking for a move down to .85 for this pair.

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