The December Euro extended its gains overnight after a strong rally during Tuesday’s session. The futures contract was buoyed by reports that Spain was set to make a formal request for financial aid from the European Union. This move would allow the European Central Bank to begin its widely anticipated bond-purchasing program.
Although the initial report on Spain lit the flame under the Euro, the rally was bolstered after Spain retained its investment grade credit rating from Moody’s Investors Service. The credit rating agency cited a reduction in the risk of losing market access as the main reason behind the investment grade retention.
Technically, the December Euro soared after piercing a down-sloping trendline created by a pair of tops at 1.3183 and 1.3080. The breakout over the trendline at 1.3029 on Tuesday triggered buy stops and attracted momentum traders as the futures contract quickly went after the October 5 swing top at 1.3080. Should the upside momentum continue, the September 17 top at 1.3183 seems like a reasonable short-term target.
The first support level is the old top at 1.3080 since according to the old adage, “old tops tend to become new bottoms”. This is followed by an uptrending Gann angle at 1.2993 on Wednesday. If momentum slows then the market is likely to following this Gann angle higher. Moving at a pace of .004 per day, this angle projects a test of 1.3183 on either October 23 or October 24.
Since the market is nearing a monthly high and the rally is news driven, traders should watch for a daily closing price reversal top to signal the start of a near-term correction.
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