Eurozone Guarantee Bank Borrowing
The euro traded at it’s highest against the dollar for three weeks after news that European leaders have agreed to guarantee bank borrowing and prevent failures.
Simon Derrick, head of currency strategy in London at Bank of New York Mellon Corp said, “the rebound in the euro, and in sterling, is a direct response to the clarity of bailout plans in the euro zone and the U.K. In the medium-term, this means a surge in national debt which won’t bode well for these currencies. In the near-term, the plans give investors confidence that there won’t be further banking failures.”- Bloomberg.com
Meanwhile in the UK, RBS CEO Sir Fred Goodwin will be out of a job after he is the latest casualty of the banking crisis.
The British Government is set to nationalise several high street banks in an effort to bolster the economy and restore confidence in the UK banking system. The rescue package looks set to be around £37bn figure, as the Government will take majority stakes in RBS, Lloyds TSB and HBOS. The only exception is Barclays who are looking for private investment in the region of £6.6bn.
Technical Chart: EURUSD 1-hour
From today’s one hour chart we can see a sharp recovery for the euro after the confidence boosting announcement from European leaders.
We can see that prices opened significantly ahead of Friday evenings close, with a retracement to the 38.2% Fibonacci line before the euro continued to rally.
The lows are matched by the lows on the stochastic, however, looking at the stochastic tops we can see this doesn’t match the price action tops on the EURUSD chart. This suggests a slowing momentum with a potential reversal in the short-term as the euro looks to be overbought.
A key area to watch would be the blue line signifying the 200-day SMA. If price actions stalls here we could see a retracement towards $1.360 or even further.
Before entering any trade, look at the broader picture by analysing the 30min, 1hour and 4hour charts to look for confirmation of direction.
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