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Euro vs Dollar 2 June 2010

As the broader markets continue to lurch from panic to blind panic the euro vs dollar is trying to base at the USD1.22 price area  following its dramatic drop in April and May from USD1.35.  The current pause point is not unexpected given the extent of the recent fall and the question is now whether having touched the USD1.21 low the euro vs dollar is likely to continue its downwards trend.  At present it appears to be forming a significant platform in this price area but  as I have outlined many times before only a sustained break below USD1.21 will provide the clear signal we need that the present downwards trend will continue.  In the last two weeks both the 9 and 14 day moving averages have present a solid barrier to any recovery, and indeed in yesterday’s volatile trading session we saw the same effect once again.  While today’s price action has been erratic volatility has declined but the overall picture remains unstable and this could be the precursor of a significant break in due course.  It is interesting to note that we are now forming a potential pennant pattern on the daily chart although this is at a very early stage but should the current sideways price action continue for any sustained period then any breakout could be both sudden and unexpected.  A possible catalyst for such a breakout could be this Friday’s Non Farm Payroll data or a significant deterioration in the ongoing sovereign debt sage in Europe.  Two interesting items of fundamental news for the euro:  the first is that last week saw the first reduction of euro short positions and the second is that Iran is considering selling 45bn of its euro holdings and proposing to buy US dollars and gold!

With very few items of fundamental news for Europe, tomorrow and Friday sees a slew of releases for the US:  Thursday starts with the ADP Non Farm Employment data. the unemployment claims, the ISM non manufacturing PMI figures and  a speech from Ben Bernanke.  Friday, of course, culminates with non farm payroll and the unemployment rate – all promising an interesting end to this holiday shortened trading week.

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