The ECB raised interest rates by 25bps to 4.0% with ECB President Trichet commenting that liquidity remained ample and inflation risks were still tilted to the upside. The Euro sold off slightly on the back of this announcement as the market showed its unhappiness with the lack of direction from the ECB on the interest rate outlook for 2008

The selling point is at 1.3504; triggered by the breaking of the trend line and a failure to reach higher than the previous peak of 1.3527. The market swings downwards and breaks the previous support of 1.3514.

- Fibonacci retracement at 38.2% represents the take profit at 1.3466 or placing a trailing stop loss of 10 pips; and the second target will be at 1.3438

- Previous resistance represents the stop loss at 1.3553.

To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice the crossing of the two moving averages above the zero line. The shorter term moving average is faster than the long term and is pointing downwards after a break of the zero line with high volume. In order to find the power of the market, we use RSI (Relative Strength Index).With RSI, we can determine that the trend is down and the supply is more then the demand.

The zero line of the ROC (Rate of Change) is very important to understand the strength of the market and as we see on the graph; it breaks the zero line and moves downwards. We should always look at the trend line; and in this example the minor trend is clear downtrend. For the momentum oscillator we have to concentrate at the zero line and the trend of the oscillator. William %R as we see on the graph the line came and touched the 80% line and dropped back down. Most of the indicators show us the weakness of the Euro against the dollars.


By Finotec’s professional analyst,
Tony B.

dealingdesk@finotec.com