Hello Forex Traders!
And the answer was…… USD weakness. The answer to yesterday’s question about the USD, that is. The USD was at a crucial level: was it going to bounce at the major support for USD strength or continue with the USD down trend? The markets spoke yesterday after the FOMC date release, economic projections and press conference.
What did the “no tapering” answer lead to?
1) XAUUSD surged from 1300 to 1360
2) Crude oil bounced from 105 to 108
3) S&P 500 increased from 1700 to 1730, setting a record high I believe
4) Dow Jones went up from 15500 to 1570, setting a record high I believe
And for the Forex market:
1) EURUSD up 200 pips from 1.3340 to 1.3540
2) GBPUSD up 250 pips from 1.59 to 1.6150
3) USDJPY down 150 pips from 99.20 to 97.70
Not only the majors moved considerably, the crosses did not stand still either as the especially the AUD and NZD won major territory against the USD, JPY, EUR and GBP.
Let us examine yesterday’s price movement and analyze what the FOMC impact is on the technical analysis picture.
EURUSD BIG PICTURE
The EURUSD smashed through the last remaining Fib at the 886. The previous Fib levels all got respected, but the FOMC announcement weakning the USD to such a extent that the 886 had no influence.
And in fact, the EURUSD is breaking through the weekly trend line resistances as we speak. With 2 more trading days to go, the weekly candle is far from closed… however, considering the momentum on the daily chart and lower the chances of this breakout turning into a false break out are slim.
Upon confirmation of a definitive breakout at the end of this week, the currency pair looks well setup for upside continuation. What would be considered definitive you might ask?
1) A close above the trend line
2) A close of the candle near the high with preferably not more than 10% wick, although up to 20-25% wick would still be ok at the very maximum
If that were to happen, and the chances of that happening are high in my opinion, then the 2 weekly resistance lines seem to be history and the range bound environment since March this year finished.
With that said, traders can put back their Fibs on the bigger movements and from a weekly perspective, the -0.272 target of this first move up could be in play at 1.4160, plus the 786 Fib of the swing high swing low downwards at 1.43.
Before we think that far ahead though, please note that the 1.36 and this year’s high at 1.37 are surely major resistances.
GBPUSD BIG PICTURE
The Cable blasted through the 786 Fib and 1.60 even number yesterday, as a knife cutting through butter. The FOMC clearly caused the biggest impulse to occur on the GBPUSD with a 250 pip bull day.
Technically speaking the GBPUSD still is at resistance. The price is now right at the 886 Fib at 1.6170, which is roughly this year’s high as well. Also, price is right at the top of the weekly trend line (purple). The GBP loves to respect the 886 Fib, and obviously this year’s high is certainly a major key level.
Therefore… the GBPUSD is at a bounce or break spot, just like the EURUSD was prior to the FOMC announcement. If price does break the 1.6170 zone, then we need to be aware of the top created at the end of December 2012 at 1.6330.
The question is: will daily upside momentum be strong enough for the GBPUSD to break through these technical resistance levels? A few observations:
1) Yesterday’s momentum has a high probability of some follow through today and tomorrow
2) Here too though, only a weekly candle above the trend line would give that confirmation of a break
3) As long as the Cable remains in the daily uptrend channel (green), the momentum could be big enough to push through the weekly and monthly resistance. A break of the uptrend channel (green) could indicate a bounce off of the weekly trend line.
What is your view of the GU and EU? How far do you see the GU going? How far can the USD weakness last?
Thank you for sharing this article with other traders.
Make sure to check out Tim’s article as well.
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