Euro vs Dollar 9 Nov 2010

Yesterday’s wide spread down candle on the euro vs dollar chart pushed the euro to dollar below both the 9 and 14 day moving averages and closing the trading day at USD1.3863.  Much of this downwards momentum was generated by the fundamental landscape where market concerns surrounding sovereign debt and banking problems weighed heavily on the euro throughout the day, with the pair also helped lower by a degree of dollar strength.  Whilst this appears to be a temporary pullback we now need to wait for normal service to be resumed once again and from a technical perspective this means a break and hold above the 9 day moving average which currently sits at USD1.4003 on the daily chart.  With the euro already having made significant gains this morning and currently trading at USD1.3955 we may well see this achieved later in the trading today and, if so, then this will signal the resumption of the recent upwards trend for the euro to dollar.  In addition a break and hold at this price level will also clear the current price congestion in this region which will then provide a platform of support for a continuation of the move.  For the longer term trend to be re-established we need to see a hold above last week’s high at USD1.4282 and once achieved will provide the requisite springboard to USD1.45 and beyond.

Euro vs Dollar Chart 4 Nov 2010

With yesterday’s unprecedented day of fundamental news now firmly behind us the markets have duly spoken as the FED finally lifted its skirts to reveal what lay beneath – a quantitative easing programme to the tune of $600bn.  As expected this triggered a sell off in the US dollar with a consequent strong rise in both commodities and equities which came as no surprise to us and is what we have been forecasting over the last few weeks.  The technical picture for the euro to dollar now looks increasingly strong with the firm break and hold above the USD1.4156 area today adding further upwards momentum for the euro vs dollar with the recent sideways price congestion now providing a deep and sustained platform of support immediately below.  The moving averages are adding further weight to this bullish mood with the 9 day having now crossed above the 14 day to provide a bull signal, and further short term support to the upwards trend.   The 40 day average continues to point sharply higher and with the 200 day now also bottoming out we can expect to see a sustained and prolonged climb, possibly even to re-test the high of late 2009 at USD1.5137.  As such we can expect to benefit from the longer term upwards as the US dollar is crushed under the weight of its own printing presses!

In this seminal week we still have tomorrow’s non farm payroll data which is forecasting a positive figure of 63k against last month’s -95k.  This comes on the back of Wednesday’s ADP number which came in better than expected at +43k against a forecast of +21k.  However, remember we had a similar picture last month where the ADP figure was signalling some positive news, so do not be surprised if we see some less than stellar results for this key release tomorrow.  The unemployment headline rate is expected to remain flat at 9.6% and indeed following Wednesday’s volatility this Friday’s nfp may have less impact than usual on the market.

Dollar retreat following FED statement