EUR/USD Daily Outlook April 30, 2012

By: Christopher Lewis

The EUR/USD pair had a strong day on Friday as the markets continue to digest the words of Ben Bernanke during the Federal Reserve’s news conference on Wednesday. There are a lot of market participants that interpret the words that he uttered as a hint towards quantitative easing, as he said that there are more tools that he Fed can use in order to prop up the economy if things get worse going forward. However, he didn’t mention what it would take to do so, and one would have to think that he has to say such things.

While this isn’t to doubt that the Fed would ease somehow if the economic conditions got worse, it is more of a question as to what exactly was said. After all, the actual statement itself didn’t mention anything relating to the idea of easing, and in fact was very far from actually saying “quantitative easing”, which is of course what everyone seems to want in the marketplace at the moment. However, one has to wonder how much longer this can go on, as the markets have been fed cheap money for quite some time. Sooner or later they will have to stand on their own, and the real threat of serious inflation will enter the picture someday.

Triangle holds…..for now.

The triangle that I have been paying attention to lately seems to be holding as of now, but the Friday session was a real challenge to the structural integrity. The 200 day EMA is above the down trending line of the descending triangle, and as a result should continue to push the pair lower. However, it must be said that we are at an inflection point.

The trade is pretty simple really. On signs of weakness at the trend line, I will be selling. (Full disclosure, I have already shorted a small position off of the line.) Because of this, if the line holds, I will move to sell larger positions on the way down. However, if we break higher, I won’t only close out the position but I will reverse it. The main reason is that the weekly candle is a hammer, and it looks like a breakout it a real possibility at this point in time. I will base my next move on where the Monday candle closes, as if we are above the top of the potential triangle, I am going to buy. As long as we are under it – I am short.