FOMC Sparks EURUSD Rally & Offers Trade Setups to Both Directions

The Federal Open Market Committee “warned” the market via the release of its FOMC meeting minutes on Wednesday that the timing of any rate hike(s) would be fully data dependant and therefore not as soon as some of the market participants might have thought. In a complex debate on words, the FOMC debated whether the current language was in sync with their own expectations and emphasized that no increase “in the target range for the federal funds rate would occur mechanically after some fixed calendar interval…”

Upon the news release, the DOW quickly rose and the USD weakened. The EURUSD weekly candle broke last week’s high and could become a weekly engulfing twin IF the bulls manage to stay in control the next day and close the week near the high.

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On lower time frames traders noticed that the bullish swing was able to break through both short-term (orange) and long lasting resistance trend lines (dark red) – as well as horizontal resistance (purple). The break of the resistance thereby ended the downtrend vibe that lasted a whopping 3+ months straight and price chooses path 5 of Monday’s expectancies on the USD (NFP figures Fuel Dollar Uptrend but For How Long?).

9- 10- 2014 eu 4

The next questions are:

  1. How long can the upswing last?
  2. Is it possible and profitable to look for longs?
  3. At what point could the upswing fade and the bigger downtrend on the EURUSD continue?

Here are the answers one by one.

How long can the upswing last?

The recent bullish break places the EURUSD in a short and medium term uptrend, but the bigger long-term trend is still down. Why? Take note of the resistance trend line (blue): as long as this trend line remains intact the downtrend could eventually continue as price remains below key resistance.

Is it possible and profitable to look for longs?

At the moment though the 4 hour chart does have higher highs and higher lows so longs are certainly warranted. At the moment price has made a big sprint up without any pullback. I think that the most profitable way to enter a long would be to wait for a hook back to the 38.2 – 61.8 Fibonacci retracement zone (green Fib) and aim for the -61.8 Fibonacci target (magenta) and 38.2 Fibonacci retracement (magenta) confluence zone.

9- 10- 2014 eu targets

At what point could the upswing fade and the bigger downtrend on the EURUSD continue?

In strong trends price usually bounces and continues its trend at shallow Fibonacci retracement levels such as the 23.6 and 38.2. The same is valid for the EURUSD now. The short/medium term uptrend could last until price reaches these Fibs.

In my opinion the most likely Fibonacci retracement level is the 38.2 because:

  1. It shows confluence with a strong resistance zone (red)
  2. It is near the long-term resistance trend line (blue)
  3. It is near the psychological round 1.30 level
  4. The -61.8 Fibonacci target

At this level Forex traders might want to keep a very close eye on price movements because catching a short in this zone could prove to be a great reward to risk situation IF indeed the EURUSD does then continue its downtrend from 1.2950-1.30 down to 1.20 or maybe lower.

Image eu ret

How do you see the EURUSD? Are you interested in trading the long and/or short?

Happy Trading!

 

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