Somewhat Choppy Trading In EUR/USD Today Or Tomorrow

We were one of the few remaining EUR/USD (current bid 1.4794) bulls back at the beginning of August. The Aug 7 NFP came in strong and most analysts went long the USD. Not us. We held our short view and kept our target of the 1.47xx handle. So far, so good for our EUR/USD trade and we currently sit on a long half position. But what next?

Yesterday’s Fed announcement had a rather dull effect on the markets. If I may be so bold as to summarize in as few words possible……”We see signs of economic recovery, but we will keep throwing everything we have at it.” Is that good or bad news?

On a fundamental basis, we still see the US government “printing” more and more USD. Call it TARP, call it Econ Recovery Act of 2009, call it the Fed’s Balance Sheet….we call it printing cash. And I will go back to my undergraduate Econ 101 classes and remind everyone that if the supply of something goes up without a related demand increase, the price (or value) of the item must come down. However this is a true long term view that effects where I do my banking and what base currencies I hold my retirement funds in…not what will happen in the next few days or weeks. But we do have that in the back of our mind at all times.

From a trader’s perspective, the price action of yesterday is telling, but as usual we like to see a confirmation. We saw EUR/USD dip below the 1.47xx handle briefly, only to recover and at the moment push towards the 1.48xx handle again. We think today and tomorrow will be somewhat choppy trading in EUR/USD, and the most important level is where we close on Friday afternoon. The levels that we feel are significant breakout points are 1.4820 on the top and 1.4620 on the bottom. I have attached a daily chart of EUR/USD below, with our favorite Bollinger Bands overlayed.

We are confident that the march of EUR/USD higher will continue in the weeks and months to come. But in the short term (next few days) we are wary of a pullback to the midline level on the chart below. Also, not seen on the below chart is the past previous resistance level in EUR/USD from Sept 23, 2008. That level? 1.4804. If we break through and hold that level for a few days, we expect EUR/USD will be above 1.54xx by Thanksgiving.

A note on our trading style. We believe that it is easier to spot medium term trends than short term trends, so we always have a bias and a medium term position on. but we do trade around news events such as Fed decisions, NFP, and some geo-political events. In these cases we will often take off or add to a position for a few hours or even a day or two.

Subscribe by RSS Subscribe by Email