The news that the U.S. economy weakened overshadowed concerns about sovereign debt issues in Spain and Ireland. This remains the only factor that could exert a bearish influence on the Euro. As long as the U.S. economy remains weak, the greater the chance the Fed will use quantitative easing to try to prevent the economy from derailing. QE puts more liquidity into the economy thereby weakening the Dollar.
Technically, if the Euro can sustain itself above the 50% level at 1.3510, then look for the rally to continue to the Fibonacci level at 1.3816.
The GBP USD fell sharply on Tuesday, triggered by negative comments from Bank of England’s Adam Posen regarding more quantitative easing. Posen said that more QE is going to be needed in order to lead the UK economy to full recovery. Posen suggested that further fiscal stimulus and corporate debt buying might be needed if this round of QE is not enough.
Despite recent news to the contrary regarding better than expected GDP and high inflation, Posen believes that the UK economy may fall into a cycle of low growth for a long period of time although he dismissed predictions of a double-dip recession. The type of scenario he is forecasting is usually marked by high unemployment and low growth.
Technically, the British Pound fell after Posen’s speech, triggering a hard sell-off and a lower close. The closing price reversal formation is indicative of a top. This pattern often leads to the start of a two to three day break highlighted by a 50% retracement of the last rally.
Based on the last rally of 1.5503 to 1.5894, the retracement zone is 1.5698 to 1.5652. An uptrending Gann angle is at 1.5616.
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