We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • What are the Market cycles? How are #currencies impacted in these cycles? How can these cycles impact #forextrading patterns? Find out here: https://t.co/ckr2fUOWqW https://t.co/gLJGj1FAOC
  • Central bank independence has several advantages and disadvantages. Find out what they are in-depth with @MartinSEssex here: https://t.co/wVFXbbTxf1 https://t.co/J0MMkVmCUu
  • Get your stock market basics right - what is the stock market and how does stock trading work? Find out here: https://t.co/JfAJLAtlsY https://t.co/ZfPUxHWeiG
  • The Mexican economy contracted for the first time in almost 10 years in 2019, but growth is expected to pick up in 2020 according to its finance minister. Get your $USDMXN market update from @HathornSabin here: https://t.co/gupJdU7WYT https://t.co/mMN8LFb5i5
  • EUR/USD has been weakening since the start of 2020 and the decline has accelerated this month. At some point there will be a correction but further losses are still likely as the year progresses. Get your $EURUSD market update from @MartinSEssex here: https://t.co/ieJUBNeAIf https://t.co/Dw4f7DQocg
  • The $AUD has risen in anticipation of a deal Washington and Beijing. But the Australia-China trade relationship has not suffered much and may even have been helped by China’s spat with the US. Get your market update from @DavidCottleFX here:https://t.co/An7h5X0Zcz https://t.co/Rn7mLbS1EF
  • How can traders avoid #FOMO in trading? Start by implementing a well-heeled plan taking only four hours per week. Get your insight from @JStanleyFX here: https://t.co/vwUShQPc27 #tradingstyle https://t.co/0Wn4xBL0AY
  • Do you know which type of stock is the right investment for you? Stock types help investors decide on specific #stocks to trade or assist with valuation methods either fundamentally or technically. Learn more about stock types here: https://t.co/yO3JalkqUU https://t.co/RoNdExHAdt
  • The status of the US #dollar as the safe-haven asset of choice remains untouched and any weakness in the greenback is likely to be short-lived. Get your $USD market update from @nickcawley1 here: https://t.co/LO2u38jpUT https://t.co/ctgCJSOeTH
  • #FTSE 100 testing key support as the index lacks a directional bias. #DAX reverses off channel top. Get your indices technical analysis from @JMcQueenFX here: https://t.co/IHF2dgMfg9 https://t.co/2fMTFlOeTR
Europe's "Grand Plan" Not So Grand in Our Eyes; Risks Remain

Europe's "Grand Plan" Not So Grand in Our Eyes; Risks Remain

2011-10-17 06:20:00
Joel Kruger, Technical Strategist
  • Europe’s “Grand Plan” to be finalized by end of week
  • Euro approaches psychological barriers by 1.4000
  • Additional upside should however be limited
  • Weekend commentary expresses concerns over effective resolution
  • UK Telegraph article paints dark picture and concludes proposed plan ineffective
  • US industrial production and empire manufacturing due
  • Fed Evans and Lacker slated to speak later today

Markets remain relatively well bid into the new week with most of the risk rally coming on the back of what has now been dubbed the “Grand Plan.” The plan to address the debt crisis in the Eurozone is expected to be completely finalized this weekend, and presented the following week at the G20 Summit in Cannes. The main components of the plan include fresh capital for banks, a scheme to leverage the EFSF up to about Eur 2tln, and new debt relief for Greece. The optimism surrounding the plan has resulted in a currency rally that has taken the Euro all the way back towards 1.4000, and the risk correlated Aussie well beyond 1.0300. However, as we have stated in previous commentary, we continue to classify the current rally in the markets as corrective and see the greater risks for a resumption of broad-based US Dollar strength over the coming sessions.

While we would concede that the proposed plan to deal with the current crisis in Europe is a positive, there are still many problems that need to be fixed before we can really convince ourselves to become longer-term optimists. Many officials have come out over the weekend sharing these sentiments, and one point that is still highly concerning is the Greece resolution component of the plan which seems to still be very much up in the air. Treasury Secretary Geithner has highlighted this fact, while German FinMin Schaeuble has also weighed in, saying that “a lasting solution for Greece would not be possible without a debt write-down, which would likely involve larger haircuts for private holders than the 21% already agreed upon in July's summit.” This in turn would inevitably place more funding pressures on heavily exposed banks, which would potentially threaten the rating status of the countries of these banks. France’s rating in particular could be compromised, with the country’s bond spreads still widening out to record levels.

An article in the UK Telegraph speaks more broadly to the issues at hand and concludes that Europe’s banks face a staggering $7 trl lending contraction which would be required to align balance sheets with those of the US and Japan, and that this enormous contraction warns of a severe credit crunch and “chronic depression for a decade.” The article goes on to say that the risk is for a “Japanization” without the benefits of Japan scenario which offered a single government, massive trade surplus, 1% debt costs, and unique social cohesion. The article then concludes that the overall risks to the plan are massive and “threaten a secondary chain of consequences that may ultimately prove self-defeating”, making the proposed plan ineffective and meaningless.

Our technical outlook aligns well with the sentiment expressed above, and although we have seen sizable rallies across most of the major currencies against the buck over the past several days, the price action is classified as corrective, with a fresh higher low sought out in the US Dollar ahead of the next major upside extension. Looking ahead, all is quiet in Europe with the economic calendar completely empty. Activity does not pick up until the North American session where US empire manufacturing and industrial production take center stage. On the official circuit, Fed Evans and Lacker are slated to speak. US equity futures and oil prices are moderately bid, while gold trades flat.


Opening_Comment_body_Picture_5.png, Europe's "Grand Plan" Not So Grand in Our Eyes; Risks Remain


Opening_Comment_body_eur.png, Europe's "Grand Plan" Not So Grand in Our Eyes; Risks Remain

EUR/USD: The latest break back above 1.3700 suggests that a more significant short-term base is in place by 1.3145 and from here we see risks for further consolidation before the broader downtrend resumes. Key short-term support now comes in by the previous resistance now turned support at 1.3700 and a break back below will be required to alleviate immediate topside pressures. Rallies towards 1.4000 should however be sold as the market looks to carve a fresh lower top on the daily chart. Ultimately, only a daily close above 1.4100 would give reason for concern.

Opening_Comment_body_jpy2.png, Europe's "Grand Plan" Not So Grand in Our Eyes; Risks Remain

USD/JPY:Has been locked in an intense consolidation over the past several weeks, since breaking to fresh record lows by 75.95, and while we would not rule out the possibility for a continuation of the downtrend, any additional declines are seen as limited. Longer-term technical studies are looking stretched and we anticipate the formation of a major base in favor of an intense upside reversal. Look for a break back above 77.90 to confirm outlook and accelerate. In the interim, any dips towards 75.00 are viewed as an excellent and compelling buy opportunity.

Opening_Comment_body_gbp2.png, Europe's "Grand Plan" Not So Grand in Our Eyes; Risks Remain

GBP/USD: The recent break back above 1.5715 has triggered the formation of an inter-day double bottom which now opens a fresh upside extension towards a measured move objective at 1.6100. The 1.6100 area also loosely coincides with the 100/200-Day SMAs, but we would expect that any additional gains should be capped by these longer-term SMAs ahead of a resumption of the broader underlying downtrend. However, inability to extend gains followed by a break and close back below 1.5720 would suggest that the corrective rally has come to a premature end, and should accelerate declines.

Opening_Comment_body_swiss1.png, Europe's "Grand Plan" Not So Grand in Our Eyes; Risks Remain

USD/CHF: The market is in the process of consolidating its latest sharp recovery out from record lows by 0.7000. Although there are some risks over the short-term for deeper setbacks, any declines should be very well supported on a close basis above 0.8500. Back above 0.9315 will signal an end to the consolidative price action and confirm a fresh higher in place ahead of the next major upside extension back above parity. Ultimately, only a close back below 0.8500 would give reason for concern.

--- Written by Joel Kruger, Technical Currency Strategist

To contact Joel Kruger, email jskruger@dailyfx.com. Follow me on Twitter @JoelKruger

To be added to Joel Kruger’s distribution list, send an email with subject line “Distribution List” to jskruger@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.


News & Analysis at your fingertips.