Euro Dollar Daily Chart 19th May 2009

Euro Dollar Daily Chart 19th May 2009

The currency markets continue to trade on sentiment ignoring factual evidence to the contrary with this morning being a classic example of the heart ruling the head with the German ZEW sentiment index coming in much better than expected at 31.1 against a forecast of 20, despite the fact that last week the German GDP figures were nothing short of catastrophic.   It almost seems at the moment that the markets have no memory, and certainly no desire to hear or face up to bad news, and this seems to be a common theme across many markets and sectors.  Yesterday equity markets soared, posting triple digit gains on a “no news” day, and in the euro dollar despite a gapped down open, ended the day on a wide spread up bar pulled higher by rising equities and crude oil prices, as risk aversion was thrown to the wind.  This price action has continued in this morning’s early trading.

Yesterday’s candle has provided an extremely interesting piercing pattern on the daily chart initially opening below the 14 day moving average and closing above the 9 day moving average, suggesting that we may see a move higher today which indeed seems to be case.  The short to medium term outlook for the euro dollar will be dictated by the resistance level at 1.3750 and, if this is breached, then there is little resistance directly ahead until at least 1.42, so this area is now they key for any trading decisions.  If prices fail to breach this once again then we could see a move lower, initially back to 1.3250, but if the 1.3750 price point is cleared then we could see 1.42 re-tested.

This afternoon sees Building Permits and Housing Start figures released in the US and it will be interesting to see how the market reacts to these numbers.  One possible scenario is if the data is better than expected this could boost equity markets which in turn will push up the euro.  My trading suggestion for the euro dollar is to step aside unless and until the 1.37 price point is breached with momentum.

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