All’s well that ends well – Europe Interest rates and the US Job numbers

Dean Peters-Wright

Senior Analyst

fxKnight.com

The European central bank is expected to raise interest rates this week in an effort to fight the rising inflation causing panic within governments. It is expected to be raised by 25 basis points, the first time the ECB has changed the rates since May 2009. In an attempt to curb the rocketing prices which has caused global inflation, the effects will be felt in different ways across different countries. Pressure on Portugal, Spain, Greece and Ireland as they struggle with liquidity issues may result in further complications in the regions financial systems. Spanish banks are exposed to Portugal’s banking system and liquidity problems in Portugal could inadvertently cause a credit run on the Spanish markets. This in itself would not cause the case for Portugal to accept a bailout, but it will make it harder not to.

An interest rate hike will most likely cause further strengthening of the euro against most other currencies. Whilst this is good for production that use overseas materials and suppliers, this will also will put pressure on exporters and those economies that gain a substantial percentage of their GDP through tourism from visitors outside the single currency zone. If however the perceived danger to the smaller weaker economies outweighs the benefits of fighting inflation, there could be a sell off the euro as confidence decreases in the regions stability.

The US had a surge in the dollar when the non farm payroll figures were disclosed and the unemployment rate fell to 8.8%. Whilst the most powerful economy in the world celebrated along with all of its trading partners that have generally relied on the US being the engine driving world economic growth, it did highlight just how far the recovery has to go as prior to 2008 the US unemployment rate was under 5%.

The EUR/ USD has once again reached a key resistant point at 1.4234 where the euro sold off heavily before. If however the buying pressure breaks through this key level then we could be seeing new highs gained against the dollar with an ultimate target of 1.4790. Further long targets to watch for are 1.4427 and 1.4680 where key buying and selling levels have taken place through 2009.

IF the EUR/ USD retreats then 1.4037, 1.3887 and 1.3725 are significant support levels from before. 

The contents of this report are for information purposes only. It is not intended as a recommendation to trade.  InterTrader  do not accept any responsibility for any use that may be made of the above or for the correctness or accuracy of the information provided.

Technical analysis EUR/USD

EUR/USD jumped as high as 1.3757 in the final week of January.  The pair stayed at that level for a short while on bearish divergence conditions in four hours MACD.  However, strong support above 1.3245 is anticipated to bring a rally in the coming weeks.  The pair’s total decline from 1.4281 should have ended in three waves down to 1.2873 already; above 1.3757 should lift the pair closer to 1.4 to test 1.4281 resistance first.

Overall, the question that remains is whether mid-range correction from 1.6039 has finished its three waves down to 1.1875.  The hard break above 1.35 again affirms that the fall from 1.4281 was simply a correction and the general rise from 1.1875 is ongoing.  Also, insiders are quick to note that break of 1.4281 will give new life to the argument that mid-range term correction from 1.6039 was completed in three phases down to 1.1875 and that a long-term uptrend could be resuming.  On the other hand, below 1.2873 is likely to turn the focus back to the 1.1875 low.

Over the long term, considering the five wave structure of the long uptrend from 2000’s low of 0.8223 to 2008’s high of 1.6093, price actions from 1.6039 are considered merely correction.  Thus, watchers first anticipate strong support between 61.8% retracement of 0.8223 to 1.6039 at 1.1209 and that 1.1639 will contain downside.  Second, another high above 1.6039 is expected eventually, once correction from 1.6039 has been confirmed as completed.

Spread betting carries a high level of risk and you can lose more than your initial deposit, so you should ensure spread betting meets your investment objectives. 

The contents of this report are for information purposes only. It is not intended as a recommendation to trade.  InterTrader  do not accept any responsibility for any use that may be made of the above or for the correctness or accuracy of the information provided.

EUR/USD Target Hit - Next Levels to Watch

Andrei Knight, Chief Strategist, fxKnight.com

Ireland's formal request for an EU bailout continues to weigh heavily on the Euro, as Spain's bond market begins to show signs of trouble as well.  Portugal, Belgium, and Italy also remain potential trouble spots, and Greece is not out of the fire yet as well.  This, coupled with initially fairly promising holiday retail numbers out of the US (up 6% from last year, as high as 25% for some online retailers), should make for some interesting trading on the EUR/USD in the final weeks of the year.

With our target from last week hit at 1.3128, we are now looking to see whether that level can hold as the new resistance or not.  If so, the next downside target is at 1.2931, with an additional one potentially waiting at 1.2612 if we break below the first; if, on the other hand, we get back above 1.3128 and find some support there, then I will be looking for an eventual return to 1.3446, with resistance on the way at 1.3221 and 1.3296.

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EUR/ USD found a high at Fibonacci

Dean Wright ,Senior Analyst ,Fxknight.com


The EUR/ USD has recently consolidated and hit the previous Bull and Bear targets over the last two weeks.

The EUR/ USD played beautifully to the Fibonacci projection with the price reversing at 1.4234, the key level discussed on the analysis published on the 10^th of October.

http://www.fxstreet.com/technical/forex-strategy/currencies-technical-strategies/2010-10-10.html

As the price of the EUR/USD has closed below the key level of 1.3726, it has a likely chance of continuing to the downside, in which case, the bear target of 1.3333 is most likely still in play.

Due to the fact that last week, buyers came in at 1.3595, this should be a key level to watch on the way down as buyers may come in again.

Should 1.3889 fail to hold as resistance, then the most likely target to the upside would be the 138.2 Fibonacci projection level at 1.3889, a key buying and selling point for traders in recent weeks. If price continues to move to the upside then a double top could occur at 1.4234 and so this should be a key level to watch for sellers coming in again.

The provision of third party content is for general information purposes only and nothing sent to you should be construed as providing investment advice or a solicitation to purchase or sell any investment. InterTrader has no commercial interest in FX Knight and does not endorse any recommendation or analysis contained in their material. InterTrader accepts no responsibility for and has no control over the content (including legality, suitability, accuracy, timelines, reliability or availability) of any of the material supplied by FX Knight

Trading EUR/USD – A multi year technical analysis topped with some fundamentals.

In this review on the EUR/USD pair we will be looking to understand from a technical point of view where this pair might be going. The methodology is to look into past performance and find leading indicators that can provide us with clues for the future. For that we will be using a set of overlays and indicators.
I divide the different tools in my into two types. The first are primary tools, the signals they provide are used to take a view on the market. The second type are confirmation tools. Before opening a position most of my indicators should tell the same story. In this analysis I will be using the following
Primary:

• EMA (120) and EMA (60) [Exponential moving average on price]
• MACD (24,52,18) [Moving Average Convergence Divergence)

Confirmation

• RSI (28) [Relative strength index]
• Fibonacci retracements

I recommend for you to either open in a different window or print the Chart below before we continue (Dotted line is EMA(120) and solid line is EMA(60)

Past performance :
In August of 2008 we can see observe the following phenomenon. Price is making a new high where:

• The EMA(60) exhibits a bearish engulfing over the EMA(120)
• MACD plummets from 272 to around 68 
• RSI declines from 73 to 54

Not far after we can see the EUR crashing in a classic 5 wave pattern.


In late October 2009 and at the beginning of November of the same year after the EUR depreciated by 23%, we can observe the following

• MACD is in positive divergence from it’s signal line
• RSI is going up
• EMA (60) is well below EMA(120)

Since only one of the main indicators suggests a reversal I would have stayed on the side lines this time around. In reality price recovers by 16% in less then two months. The reversal is not sustained and a classic head and shoulders formation with a double bottom is formed between October 2008 and March 2009.
Only in May of 2009 we can again see a clear combination of signals suggesting a sustainable trend reversal.

• EMA(60) is cross over EMA(120)
• MACD is in positive divergence against it’s signal line and in an overall bullish trend.
• RSI climbs from to 47 
• Price crosses the 61.80% Fibonacci retracement mark.

All these signals combined and pointing in the same direction suggest to me there is high probability long trade here. When trading, one should always have a stop loss and a target. I tend to use a concrete price for stop loss and indicators for my take profit. The stop loss should be placed at the bottom of the movement dated April 19th price 1.2980 .The take profit target should be when EMA(60) crosses under EMA(120). This method would have produced profit of 850 pips over an 8 months period.

Beginning of January we can see the exact mirror pattern of the May 2009 one suggesting it’s time to short the EUR.

Now that concluded the analysis, it’s time to evaluate where we now:

• EMA(60) is in a 397 pips (2.37%) negative divergence from the EMA (120)
• MACD is climbing steadily and is in positive divergence from it’s signal line
• RSI is in an upwards channel
• Price touched the 61.8% Fibonacci retracement line.

So… It’s a mixed bag. One of our main indicators suggests a high probability for reversal where the other is still far away from indicating a positive reversal. Our confirmation indicators are both bullish.


Action: I am currently short this pair and therefore I would hold for now. If I was neutral I would wait for the pair to test 1.3400 support, If support hold and there are signs of a bullish engulfing from the EMA (60), I would take a cautious long position.

From a fundamental perspective my view on the EUR remains bearish. The latest crisis had a dividing affect on the Euro zone. We have strong economies (Germany, France) that are on the road to recovery where inflation lurks around the corner. On the other side with the PIGS(Portugal, Ireland, Spain and Greece) are in significant debt and I can’t see any light at the end of this tunnel. The divergence may have devastating affects on the EURO as different fiscal policies with a deadlocked monetary policy ,the ECB cannot increase interest rates as it will push the PIGS into defaulting on their debts. Mr George Soros wrote an article published in the FT two months ago about the same, take a few moments to read the article.


Happy Trading ,

Shai Heffetz
Head of InterTrader.com

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