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Is the Euro Overbought or the Uptrend is Sustained?

By Razvan Mihai Leave a Comment

Well, let us see what are the premises? For the Euro Area we had some very good PMIs published this month, lower unemployment rate and Germany surprised with better than forecast industrial production, trade balance, factory orders and unemployment change. Furthermore the ECB maintained the interest rate unchanged and Mario Draghi recovered his optimism in what concerns the economic evolution of Europe.

Adding to this the fact that Federal Reserve is still maintaining the Quantitative Easing program unmodified we can say that there are reasons for the investors to go long Euro and short the US dollar.

In every FOMC statement and speech of Ben Bernanke it is said that Fed will continue the QE as long as it is necessarily for the labor market to get back on its feet. On the other hand the officials that gave statements to the press believe that the tapering of the program will start in September, because the unemployment rate started to drop and there are signs of economic recovery.

Bering this in mind, we believe that this uptrend will continue until the Fed will announce the tapering of the stimulus and the date that will end the QE.

So to answer our question: The Euro is not yet overbought, but the uptrend might not be sustained for a long period of time.

From the technical point of view, the price has breached above Friday’s top and almost hit 1.3400. For today it seems that the rally stopped. If this week will close above 1.3350 it will confirm the break above the higher line of the symmetrical triangle (you can find more details reading EURUSD Dragged Towards 1.34 on QE Continuity) and also signal that the uptrend could continue for the rest of August.  A false breakout could bring the price back to 1.33 or even lower.

eurusd-overbought-or-trend-is-sustained-08.08.2013

Chart: EURUSD, H1

Looking at the lower time frame we can see that the price has reached a resistance area at 1.3400/20. Adding the overbought in the RSI evolution we should open the eyes for a pullback. A break above the resistance could open the way for another rally that is targeting 1.3500.

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EURUSD Dragged Towards 1.34 on QE Continuity

By Razvan Mihai Leave a Comment

Last week the FOMC statement showed that Federal Reserve officials are still on the Quantitative Easing side. It seems that the QE is expected to be shut down only if the unemployment rate will drop to 6.5% or if the inflation rate will rise 0.5% above the medium target. Keeping in mind that the United States has an unemployment rate at 7.4% we can say that it might take a while until the end of the program or at least until the tapering. On Thursday the unemployment claims surprised with a value of 326K (under estimates) while on Friday the Non-Farm Payrolls came at 162K, with 20K lower than the forecast.

On Thursday the ECB maintained the interest rate a record low 0.50%. The main ideas from Draghi’s press conference were:  the ECB will continue to keep low interest rates and high liquidity, will keep the door open for new rate cuts and forecast a slow recovery at the end of the year and in 2014.

The latest economic releases for the Euro Area were mainly above expectations: a lower unemployment rate, higher PMIs for both manufacturing and services sectors and better industrial production for Germany.

eurusd-dragged-towards-1.34-06.07.2013

Chart: EURUSD, Weekly

Looking at the EURUSD we can see that the pressure is now on the upper line of a symmetrical triangle. Last week was a Doji candle above 1.3200. If this week will close above 1.3345, last week’s high we might see a rally toward 1.34 or why not even higher to 1.35. A false breakout above 1.34 could signal a reversal.

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USD or JPY what would traders choose?

By Razvan Mihai Leave a Comment

usd-or-jpy-which-investors-will-choose-17.07.2013

Chart: USDJPY, H4

From the top of this year, hit in May, the US dollar lost about 9.5%. It managed to recover about 78% of this fall after Federal Reserve announced that it will start tapering the QE program this year and stop it in 2014.

Yen is becoming a week currency because of the monetary easing started by BoJ. The program already shows an improvement in Japan’s economy so the Central Bank will maintain it a current values until the end of the year. They are targeting deflation and the devaluation of the currency, in their opinion, is just the effect.

During the past 7 days USDJPY has consolidated in a symmetrical triangle right under the 78.6 retrace of the latest impulse of the main uptrend. This means that investors are not yet convinced in which currency to invest. While they are waiting for further signals from the Central Banks, we can look for technical signals to understand in which they will invest next.

If the price will break the upper line and close on a 240 minutes time frame above it could trigger a new rally for the US dollar and target the 102.00 price. On the other hand, if the price will close under the lower line we might witness a drop to 96.70 (the 61.8 Fibonacci retrace of the uptrend).

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