Euro vs Dollar 20 Oct 2010

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.

India warns on damage from G20 tensions

Euro vs Dollar 18 Oct 2010

The daily chart for the euro vs dollar has thrown up some interesting signals in the last few days, not least of which was Friday’s deep shooting star candle which replicated the smaller version that we saw on Thursday, and as such, gives us a strong indication that we are likely to see a retracement from the recent bullish trend in the euro vs dollar.  Indeed so far this morning the euro vs dollar has traded lower, moving from an initial USD1.3954 to currently trade at USD1.3892, having touched an intra day low of USD1.3830.  It is interesting to note that the 14 day average has already provided support to this morning’s price action resulting in a bounce higher and for any further development of this short term reversal we need to see a break and hold below the 14 day average.  If this indeed does occur later in the week then we could see the euro vs usd push lower towards a test of the USD1.36 area but the longer term outlook still remains firmly bullish for the pair so we expect this move to be a temporary one.  This analysis should also be read in conjunction with the usd index chart which has a long leg doji candle on the weekly chart, which in itself suggests a potential turning point, coupled with a hammer candle on the daily, which again is signalling a reversal higher.  With little in the way of fundamental news today, other than the TIC Long Term Purchases in the US, which are forecast to come in below last month’s 61.2bn, to come in at 47.5bn, we will have to wait for later in the week when we have a slew of news which will give us a better idea for the next price phase for the euro vs dollar.

Both China & US at fault in currency way

Euro vs Dollar 15 Oct 2010

The technical picture for the euro vs dollar remains firmly bullish as continued and systemic from the US currency propels the euro higher, rather than from any positive eurozone news or sentiment.  Indeed this is a feature that we are likely to see over the coming weeks as the FED’s policy on QE2 really gets into its stride and the printing presses begin to roll.  We may even see some further light shed on this subject this afternoon with Fed Chairman Ben Bernanke due to deliver a speech “Monetary Policy Objectives & Tools in a Low Inflation Environment” at the Federal Reserve Bank in Boston – you couldn’t find a bigger red, neon arrow pointing the way even if you tried!!

From a technical perspective yesterday’s price action resulted in a narrow spread up candle with a deep wick to the upper body which hinted at a possible minor retracement for the pair, but so far in this morning’s early trading session, the pair has continued higher to trade at time of writing at USD1.4075, having breached the USD1.41 level earlier at USD1.4113.  The 9 day moving average continues to provide excellent support to moves on the daily chart and with the 14 day also providing a strong platform the upwards momentum remains strong.  This is further confirmed by the 40 day moving average which has now crossed above the 200 day, adding further weight to this analysis.  On the weekly chart the picture is equally positive with the euro vs dollar having breached the 200 week average and both the 9 and 14 week ma’s now crossing above the 40 week.  As such we are now set to test resistance at USD1.4336 and any break above here will test the underside of the USD1.4579 level and once QE2 begins to roll, expect to see a test of the USD1.5145 of late 2009.

The only significant items of fundamental news today, aside from the speech from Ben Bernanke, include core CPI, core retail sales, retail sales and the UoM consumer sentiment in the US.  So a busy afternoon for all the markets.

Dollar falls sparks stability warning

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Euro vs Dollar 13 Oct 2010

The daily chart for the euro vs dollar gave us a strong bullish signal yesterday ending the forex trading session as a narrow spread up candle but one with a deep lower shadow which confirmed once again the bullish sentiment for the euro vs dollar at present as it bounced off the 9 day moving average.  This positive sentiment has also been given a further boost by the 40 day moving average crossing above the 200 day and giving us a further bullish signal.  Finally, of course, the technical picture was enhanced further with the release of the FOMC minutes last night which confirmed, unequivocally, that QE2 is now imminent and, as such, we can expect a further bout of sustained dollar weakness which will convert to strength for the euro on the pair.  Moreover, on the weekly chart we are currently holding above the 200 week moving average and with the test to the downside now having recovered, this is also giving us a clear bullish signal.  With QE2 likely by early November expect to see the euro vs dollar test the underside at the USFD1.4217 region and any breach here should see the pair climb towards USD1.4579 and thereafter the high of late 2009 at USD1.5140.  At this level the ECB will then begin to fret as it too becomes subject to pressure from European exporters, particularly Germany, and will no doubt join the rest of the world in the increasingly fractious currency wars in order to weaken the euro against other major currencies.

Aside from yesterday’s release of the FOMC minutes this week’s fundamental news for the euro vs dollar is restricted level 2 data with the exception being tomorrow’s trade balance in the US along with the PPI and the weekly unemployment claims.  Meanwhile in Europe we have the ECB monthly bulletin due for release tomorrow.

Currency race no one wants to win

Euro vs Dollar Weekly Chart 11 Oct 2010

The euro vs dollar paused for breath on Friday following the non farm payroll release, trading in a relatively narrow range and ending as a doji cross candle following Thursday’s shooting star candle as the pair hovered below the psychological USD1.4000 price handle.  Friday’s non farm payroll was far worse than expected and as such now brings closer the next round of quantitative easing which will almost be implemented by the FED by the end of this month.  Given the parlous state of the US economy they now have little room for manoeuvre and once implemented will weaken the US dollar further with the euro dollar gaining as a result taking the pair above the USD1.40 level and almost certainly testing the underside of the deep resistance at USD1.4579 in due course.  Should QE2 continue for some time then expect to see the euro vs dollar re-test the highs of late 2009 at the USD1.5150 level.  The key feature of last week’s trading occurred on the weekly chart with the pair breaking above the 200 week moving average, a significant technical event, which further reinforces the present bullish trend.  In addition the 9 week moving average crossed the 40 week, and with the 14 week about to follow suit this is adding further weight to the current bullish momentum.  The problem for Europe, of course, is that the longer this upwards momentum continues then the more problematic will be the increasingly euro strength as exporters (particularly Germany) begin to struggle with a strong currency once again and at some point in the future the ECB may be forced to step in to take some action of its own and align itself with other central banks around the world in the currency wars, as each battles to devalue their currency and protect their respective fragile economies.  For the time being as currency speculators trades for the euro vs dollar are to the long side until we see a technical signal which tells us otherwise.