By: Christopher Lewis
EUR/USD has been a focal point for most of you recently, and with good reason. The pair is essentially the barometer of all things debt related, and as a result it has been a real pain to trade at times. This once very steady and somewhat predictable pair has suddenly started acting like the GBP/JPY of old, and as a result many traders have either lost money, or are simply avoiding it.
The Euro is often thought of as the “anti-Dollar”, and Wednesday may have seen it return to that focus as the Federal Reserve went out of its way to announce that the ultra-low interest rates are going to be in place until the end of 2014 at least. Needless to say, this is a very negative development for the Dollar overall, and will leave several questions once the dust clears.
The Fed must have their reasons for this move, and now the market will have to try and disseminate them. For example, there is one school of thought that says perhaps there are stronger headwinds in the economy than originally thought. This would have the Dollar on the back foot, but only for so long as money will run back to Treasury notes in that environment. The other thought is that perhaps the European situation is even more toxic that originally thought, and the Fed is trying to insulate the US against whatever is coming. (George Soros actually suggested this today.)
The Charts Look Bullish, But…
The breaking over the 1.31 level is very important on its surface. The move was certainly impressive as the original move was a drop. However, the pair did regain a lot of footing, but there will be many questions going forward, and while the yellow box on the chart is now broken above, I actually want to see the markets get above the shooting star that is at the top of resistance in order to feel comfortable going long at this point. It appears that there is still a lot of possible headwinds in both directions, and the headlines will continue to cause problems. If you want to short the Dollar, there are other currencies that will do better than the Euro. (Think commodity currencies as an example.)
