The hardest lesson to learn when it comes to financial markets is separating the ripples in shifting market sentiment from the tidal waves…
We had an extremely clear example of a tsunami of sentiment in the last 8 trading days. Let’s look back and trace its origins.
What was the catalyst?
The ECB meeting of January 13. In the third sentence of the opening statement, the bearish case for EUR/USD was dealt a severe blow:
Based on its regular economic and monetary analyses, the Governing Council confirmed that the current key ECB interest rates still remain appropriate. It therefore decided to leave them unchanged. Taking into account all the new information and analyses which have become available since our meeting on 2 December 2010, we see evidence of short-term upward pressure on overall inflation, mainly owing to energy prices, but this has not so far affected our assessment that price developments will remain in line with price stability over the policy-relevant horizon. At the same time, very close monitoring is warranted. Recent economic data are consistent with a positive underlying momentum of economic activity, while uncertainty remains elevated.
Read more: Verbatim: ECB Trichet’s Introductory Statement January 13 – Investing – Dow Jones Newswire – SmartMoney.com http://www.smartmoney.com/news/on/?story=on-20110113-000379#ixzz1BzDzioqo
Combined with Spain’s new program to shore-up the cajas, a major inflection point has been reached. Spreads between peripheral Euro zone bonds and German bunds began to tumble, undoing the catalyst for the euro decline in the first place. Poor US employment data the week before was icing on the cake.
Major technical resistance levels at 1.3055 had already been breached before the ECB shift, so bears should have been alert for a change of trend….
Yet here we sit more than a week later with EUR bears still in denial…Luckily for them, we’ve already rallied close to the near-term upside technical objective near 1.3700/40 but it begs the question, why sit through 6 cents of pain when you can ride the winds of change?
Both the technicals and fundamentals shifted in the same direction at virtually the same time and presented a golden opportunity. Learn from it, don’t deny it. Trade the market as it is, not as you want it to be…
