The climb in EUR/USD continued yesterday, but not without some bearish scares in between. Prices dipped below 1.34 briefly during early US trading session, but bulls pulled through and sent price towards the 1.35 resistance by the end of the US session. But unlike the past 2 days, EUR underlying bulls didn’t have to do it alone, as there was renewed hopes that the Fed will not taper in December when Janet Yellen’s prepared statements for today’s Senate confirmation hearing were released.
The Fed Chairperson nominee stated her preference for stronger and sustainable economic growth in US before the Fed should taper. This is not really surprising as Yellen, being Bernanke’s vice-chairman, has been broadly supportive of Bernanke’s QE vision. Furthermore, it should be noted that Yellen will most likely prepared her statements to be more dovish as she will be forced to stay mostly neutral during today’s Senate Q and A session. Hence, the only opportunity for her to flex her dovish muscles can only come from this. When we take this into consideration, and remember that Yellen only holds one vote amongst the 12 member FOMC, we really should not read too much into this supposedly dovish statement of hers.
Nonetheless, this will still cause temporary weakness in USD, and EUR/USD, which has been observed to have a slight bullish predisposition was ready to take advantage of that.
From a technical perspective, prices should have entered a fresh new bullish phase when 1.345 resistance is broken, but currently we are in a pullback phase with 1.345 back as a bearish target. The biggest question right now is whether 1.345 will be broken which exposes the lower trendline. Interestingly, with this latest peak in price, a new channel is ostensibly formed, with it’s relevance suspect as there isn’t many reference points for Channel Top to be sure. This adds additional bearish pressure towards the lower trendline which is now regarded as the Channel Bottom.
Should we ever reach Channel Bottom, the likelihood of the support holding becomes higher as Stochastic readings would likely be Oversold when that happens. Furthermore, the inherent mild bullish nature of EUR/USD will help price to rebound and aim for Channel Top once again.
On the other hand, should 1.345 holds, one should indeed question the validity of current Channel, and may perhaps instead focus more on a potential move towards 1.35, where a breach may open up 1.355 as bullish target.
Daily Chart is bullish with Stochastic curve showing the early stages of a bullish cycle signal. Bullish target for now would be 1.38, with 1.35 and 1.365 providing interim resistance. However, fundamentals does not really favor a stronger EUR/USD, as ECB has proven themselves to be rather dovish, with President Draghi saying that they could push rates lower if they wanted to. Even if the Fed may end up not tapering QE in December, it is unlikely USD will weaken in the long run as we do not have any chance of additional stimulus packages for US beyond what we already have. Therefore, traders should be aware of the downside risks, especially since Euro-Zone economic fundamentals do not seem watertight at the moment either.
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