The early strength in the Dollar sent the EUR/USD lower through support of a Channel Up pattern. This occurred within a distribution market cycle, which led to exhaustion as seen by the fact that prices were not able to follow-through lower in any substantial way. (Distribution is characterized by a wide range and high volatility; the four-bar Autochartist Initial Trend reading confirmed this market cycle.)

Traders looking to possibly buy into a daily chart double bottom could do so with limited risk because a break below 1.5790 would likely usher in a new low. However, increased volatility is also likely as the bulls and bears battle for dominance at this level.

1. Sovereign debt in Europe is no longer a problem. Investors believe that the PIIGS are no longer in extremely volatile state. The reason to the following is the backing from the IMF and the Union itself.
2. Credit Default Swaps started to narrow between weaker nations and ever important German treasuries. The following presents a good scenario for the weaker nations as financing their debt becomes easier.
3. Markets have turned from sovereign debt issues in Europe to weaker data in the United States. Naysayers believe that stimulus inflated economy will no longer perform at an appropriate rate. Double dip recession thoughts are in the air.
4. Spain had a very successful bond offering, which calmed down the markets.
5. Short squeezing of futures and spot of Euro. IMM data still shows a negative a net short of 73,670 futures contracts in the Euro, which will eventually be covered.
6. Tight liquidity in the Euro-zone banks is beginning to wane. Banks are able to get funded almost without a problem.
7. Stress tests for Euro banks. If you recall, stress test of banks in the United States became among one of thee catalysis’ which sparked confidence back in the markets and slowly pushed the economy out of recession.