There are a lot of traders out in “FX Land” scratching their heads at the moment, wondering “what happened today”? Earlier this morning, the US posts good news as thejobless claims number was better than expected, and Euro news showed a disappointing EMU employment number.
Well, if we follow what has happened the last few weeks, we remember that “risk” and the “DOW” seemed to have decoupled. Stocks have moved higher the last few weeks and the USD has followed suit.
All the traders buying “risk” currencies because stocks moved higher, got caught in a rather serious bind. Articles were written about how things had changed, how they had gone back to pre 2008 when strong DOW meant a strong DOLLAR.
So, what happened? Did we miss something? I don’t think so. What I think happened is simply a very “short” market running into a very strong support level at 1.2910. The inability to break lower, had traders caught with short positions and as the “stop-loss” buying commenced, positions were squared and the EUR benefited as it improved against both the USD and JPY.
We did print a yearly low earlier at 1.2910. Getting all technical on you, this was the 76.4% retracement of the 1.2660-1.3710 move. That the currency bounced is not surprising. The “bear trend” remains intact and will remain as long as we stay below the 1.3080 resistance level. EUR needs to close above 1.3135 to reverse this trend.
Keep one thing in mind. Nothing has changed in Europe. The Italian political problem still remains. The economies of Spain, Cyprus and Greece are still problems and France isn’t far behind.
While some will blame the “reverse decoupling effect” on today’s move, I simply think the market got itself way too short. Corrections of this nature are not out of the ordinary. We should continue the downward trend next week.
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