Good morning traders.
At last we got some action in the eurusd following Powell´s dovish remarks at last nights FOMC. The key deliverable from the Fed is that they are not likely to raise again this year (according to the dot plot – a matrix of Fed voters rate expectations) and are effectively on pause.
Powell was rather more dovish than many thought prior to the event and while the initial outcome was and probably is good for risk markets in the short term I wonder how long it will be before investors start to ask why the sudden change of heart.
If you remember Powell was pretty hawkish not that long ago and he´s completely switched track. Why is the obvious question.
Is the risk to the global economy greater now than it was just 3 months ago? Are there some concerns that the US economy might be running out of steam? Or is it simply political expediency under pressure from Trump?
Looking at the initial response in US equity markets I suspect these questions are being asked already. While we got a boost of about 24 handles in the S&P on the announcement, it started to retrace during the presser and faded the entire move up before rising slightly over night.
This issue is important for us re the eurusd as risk is crucial to the USD side of the equation. With risk on we are likely to see the eurusd bid or at least it is not a reason to revert to buying dollars.
With risk off the USD tends to become a safe haven currency hence dragging eurusd down. These are broad strokes and there times when this does not hold but it is something we need to bear in mind.
OK so what happened to the eurusd? It actually moved! Nearly 100 pips in fact pushing up to tag 1.1445 at the 200 DMA. It pulled off a bit over night and as I write is currently trading at 1.1420.
Of course this could be a one off event for the pair and we could be back to tight range trading any day but it might just blow some volatility into the pair – which would be welcome.
Btw – we also bagged a +13 1:1 short from R1 resistance yesterday for our model performance.
We hit the 1.14 level we were expecting. The question now is where do we go from here.
There is certainly potential for further upside in the pair at least up to test the range high of 1.1550´s as central bank moves tend to have legs and continued impact. But past precedent of slow tight range markets doesn’t help the cause.
Too early to say one way or the other for me. We did what I thought in testing 1.14 and above, I now need to watch price action – so no bigger picture predictions until we get a bit more information.
The Daily Chart
The chart looks a bit different for once :).
This move to take out the most recent daily highs at 1.14 changes the picture a fair bit. I will be watching trend line B for any retests from above as this might be a good place to try a swing long trade.
Also watch out for tests above 1.1450 and whether this level can hold as this could be a spring board for higher prices up to 1.15 and 1.1550. But we are still in a downtrend, we have just tagged the 200 DMA and we are not far above the 61.8% of the swing and just below the yearly open price. So I´m just going to watch for a while to see where we might be headed next.
The Hour Chart
We now have some very clear S & R zones on the hourly.
R1 is the high from last night and then the big fig at 1.15. If we break R2 and hold above here it would suggest a strong move and further highs may be coming up to 1.1550 and above.
If R1 holds we might be looking at a weaker move and a gradual move back down the chart. As I say – its best to watch and trade the levels today to see what might be unfolding from a longer term perspective.
Have a great day and its certainly more interesting to be trading something that moves ( or did at least move) for a change :).