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Euro vs Dollar 20 Oct 2010

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An interesting couple of days for the euro vs dollar which promptly fell heavily yesterday partly as a result of a surprise announcement from China of a hike in interest rates, which surprised the markets as this was an unscheduled move, with commodities in particular selling off sharply as the dollar strengthened.  As I suggested in one of my posts this morning the status quo would be resumed very quickly given that this was hardly a sentiment changing item of news and the only reason for the market’s reaction was a knee jerk response to an unexpected item of news.  It was therefore no surprise to see markets bounce back today and a return to the prevailing trend which has no doubt many retail traders unawares who are now short the euro vs dollar when they should still be long.  From a technical perspective today’s wide spread up candle has negated that of yesterday as the pair have recovered all of Monday’s lost ground and now hold above all four moving averages once again.  The underlying sentiment for the US still remains firmly bearish and the longer term trend for the euro vs dollar bullish and, as such, we can expect to see a break and hold above the high of last week at USD1.4159 which will then provide a further platform of support for an additional rise in the euro dollar.

Over the next few days we can expect to see a test to the underside of resistance at USD1.4217 and providing the downwards momentum for the dollar continues, we should see a test of the USD1.4579 region and longer term a move towards USD1.5140 in due course.

This week’s fundamental news for the euro vs dollar includes the weekly unemployment claims in the US tomorrow along with the Philly Fed and with the unemployment claims unlikely to change much there is little prospect of any help for the US dollar this week.  Friday’s sees the release of the German Ifo business climate index which is expected to remain largely flat at 106.5 before the market focuses on the G20 over the weekend.

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