EUR/USD rallied strongly towards the end of US trading session led by a fall in USD. USD/JPY traded lower while AUD/USD and GBP/USD pushed higher. US stocks were similarly climbing following the earlier dip post midday trade, suggesting that the fall in USD was due to the inverse relationship between Stocks and Greenback. However it is curious why USD was seemingly trading stronger during early US trade despite stocks gaping higher on market open, suggesting that the inverse relationship mentioned earlier is only observable sporadically, or perhaps even non-existence, with the supposed correlation mentioned earlier simply independent volatility of USD that happened to move inversely to stocks.
Current trend (or lack thereof) in USD could be due to the upcoming FOMC scheduled announcement on Wednesday. Bernanke is highly expected to remain dovish on the continuation of QE3, but that is not stopping the jitters amongst traders and speculators, which resulted in the seemingly directionless USD at the moment. Previously we’ve mentioned that EUR/USD may be running more on a USD engine with little or no attention paid to the situation in Europe, as such, it stands to reason that EUR/USD may also be directionless as a result before Wednesday’s announcement.
Using that to apply on technicals, this would mean that the ability to break current ceiling of 1.338 and also 1.34 round number may be a little bit tougher and would be going against the fundamental outlook. Even short term chart (Hourly) suggest that bullish momentum has slowed considerably, with the steeper rising trendline that has been in play since late May has been replaced with a gentler pace. Ichimoku still points up, but the rebound which resulted from Kumo rejection failed to break the peaks of 13th and 14th June. Stochastic readings suggest that a bear cycle may be in place with readings pushing lower after briefly tagging the Oversold region.
However, in order for a short-term bearishness to be of any significance, price will need to break below 1.335 which will open up Kumo and the rising trendline confluence as possible bearish target. Should the trendline/Kumo be broken, 1.33 round number will become a plausible bearish target. It is important to note that uncertainty until Wednesday announcement applies both ways, which means that price may similarly find it hard to break support lines, with EUR/USD effectively trading flat towards the apex of the rising trendline and 1.338/1.34 triangle which coincide around the time of Ben Bernanke’s press conference. Hence a potential breakout may be likely either way post announcement and we may be able to see good follow-through with technicals and fundamentals lining up together.
From a longer-term perspective, it is likely that Wednesday’s risk even may simply be “noise” versus the larger bulls vs bears fight. The decline from 2011 May highs remain in play, but so is the rally from 2012 Jul lows. 1.35 and preferably 2013 Highs need to be broken for bulls to stake a further claim in 2013, while price will need to clear the 38.2% Fib to allow for a return of the Head and Shoulders pattern, with price preferably breaking the neckline in order for bears to extend 2013 bear trends properly.
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