Tuesday, November 2, 2010

EUR/USD talk

Today is a bug day for all USD based pairs, but the most affected pair will be EUR/USD.

After 28 higher highs and higher lows the pair seemed to end this rally and created some hope for a reversal.

Although, yesterday, the pair tested the 1.4050 barrier we still need to see a break above 1.4080 to negate my bearish outlook. If it will happen, the rally will target the 1.4400 -1.4500 position, with the possibility of breaking above it afterward.

As I said, I maintain my bearish outlook for now, but keep a close eye on EUR/USD. My advise would be not to open any position for now and way for the clear confirmation of a bearish or bullish movement.

FOMC is the major event for today and until it happens it is unlikely to see any major moves in currencies. What to expect from FOMC? Either a short term USD consolidation (which will confirm my bearish expectations, at least on the near future) or to see the USD remaining under pressure, which will give even chances for both bearish and bullish scenarios.

At this moment the markets are expecting a stimulus, and it's no doubt weather the Feds or inject or not. The question is how will they do it?

If the Feds choose to meet or pump in beyond market expectations the USD will remain under pressure and extreme care will be needed when opening new positions on EUR/USD.

If the Feds choose not to match the market expectations for a stimulus, but to pump in just enough to give a clear message that the US economy is on the right track, this will create the conditions for a short-term appreciation on USD.

All in all, I don't expect to see much move into the USD based currencies before the Feds Rate Decision announcement. My suggestion will be not to open any new positions up until the big announcement and, even afterward, keep a close eye on the pair movement. If you are already in the market, be prepared to close your position without profit and come back later when the market will give you clear signals.

After 28 higher highs and higher lows the pair seemed to end this rally and created some hope for a reversal. Over the last two weeks a head and shoulders formation started to create and most of us were expecting to see the confirmation for the much-awaited reversal.

Today EUR/USD broke the 1.4000 barrier and, even if some are still hoping into a reversal, the head and shoulder formations seems to fade away.

As in my last EUR/USD talk, I will still keep my bearish outlook, although the chances to see it's confirmation are really slim. A move above 1.4080 on a daily basis will create the premises for a new rally, resistance being around 1.4500.

Bear in mind that Feds rate decision is awaited for this week and this creates a major psychological impact over the market.

My suggestion is not to open any position right now and keep a close eye on EUR/USD on the next days until the new trend, bearish or bullish, is fully confirmed.

Keeping an eye on AUD/USD, GBP/USD, and USD/SGD yesterday payed off, the first two pairs offering a 30 to 50 pips move each which is not exactly bad taking into consideration that the market is currently consolidating, and more important moves are expected to after the Fed's Rate decision on Wednesday.

The Reserve Bank of Australia just offered us a bearish signal at about 3:00 AM GMT., when the Australian Dollar practically exploded. The intervention of RBA becomes even more obvious if we take into consideration that this immense appreciation of AUD happened during the Asian session. Needles to say that at this moment AUD is overbought, AUD/USD is testing the resistance pivot points and it seems it doesn't have the strength to break this barrier by itself.
On short term charts (1hr and 15 min) the AUD is giving clear signs of reversal, so a good thing would be to keep an eye on this pair until the down trend is fully confirmed and then go short around 1.0000. A stop loss between 1.0150 and 1.0200 should be safe.

(the image is from a 3hrs AUD/USD chart)