Euro rising on USD weakness

For the last month the USD is in freefall against the Yen a today was a huge move down towards 87.00 before quickly recovering .60 of a penny. Today's trading may be exhaustion to the downside and looks like the currency is making a temporary bottom at 87 with quite a long tail today.

I think one factor for the USD falling so drastically that everyone has overlooked besides the oil spill and poor economic numbers is China's unpegging of the yuan. With the two currencies pegged the USD was in fact backed by the Yuan. It no longer has the artificial backing of the Yuan which is going to definitely make the USD less attractive. It is probably an underlying reason the States pressed so hard for this as well because they want a much cheaper dollar.

So when I read into the Euro, I read that much of the rise over the last month which seems attributed to Europe's countries making drastic cuts in Europe, but is in fact due more to a loss in value of the USD against all currencies.

Just some thoughts anyway, may not be totally right. One thing that may suggest a little bit of underlying strength for the Euro is that it kept rising as the USD came off the bottom today so not totally negatively correlated. Also Gold dropped $40 today as technically it couldn't hold the weak breakout. As Gold has recently been seen as a hedge against the Euro this may also suggest more medium term strength for the Euro. If the USD reverses here then I would suggest gold may come off a bit more and resume its cyclical run after this mini sell-off. $1170 and $1140 would offer great entry points if we can count on the cyclical gold market this summer like it was last. Any less below that and you really risk a breakdown in the chart.

But for the immediate short term on the Euro, it may have topped out for the trader at 1.2540 and I am short with a stop at 1.2550. The 50MA and 1.2500 should prove to be an area of resistance and I would expect somewhat of a sell-off and some swash buckling here, especially if the USD can recover going into next week. One fundamental factor for the Euro's huge rise was the EU banks seem to be repaying their short term loans. Oh great. That means we are not at total insolvency yet but I find the news somewhat grim that they would even have trouble paying back the short term loans.

We will see if there is any follow through or not with this. A trend changer? Not sure. If the struggling euro countries can get their deficits in order while not at the expense of their economies, maybe there is a chance we have seen a bottom. I really doubt it but you have to look at both sides of the story.

Happy Trading