The EUR/USD pair had a smashing day during the session on Tuesday as the market closed above the 1.30 level to put an exclamation point on the bullishness. Although I don't personally like the Euro in general, I do believe that this move is indicative of what's going on overall in the marketplace.
We are currently in a "risk on" type of situation, and this is predicated mainly upon the idea that congressional leaders in the United States will come together for some type of compromise on the so-called "fiscal cliff.”
Also, later today we will see the end result of the Federal Reserve's FMOC meeting and this could be moving the markets drastically later today. The Federal Reserve Chairman Ben Bernanke is expected to at the very least continue the “Operation Twist” program in order to keep rates low in the bond market. This is essentially the same thing as "printing Dollars", as they are buying bonds with essentially nothing.
Beware of surprises
There is the possibility that the Federal Reserve disappoints the market, but this particular Chairman has shown time and time again that he is more than willing to do with the market wants and do. Because of this, I don't believe that he will rock the boat.
Looking ahead, I do believe that the 1.3150 level will be resistive enough to contain the marketplace. Even if we get above that area, there is plenty resistance all the way to roughly 1.34 to slow down the buyers. Because of this, I think that the move higher will be a short-term move, because after all we do have plenty of reasons to worry about Europe also.
Whether or not we can go higher is actually irrelevant for me, as I believe that the real gains to be made from an expansion of Federal Reserve easing will be in the commodity currencies such as the Australian dollar, South African rand, Norwegian krone, and Canadian dollar. The same thing can be said for the New Zealand dollar, but it is currently a bit overextended so this would be one of my least favorite of the commodity currencies to play.
Alternately, if we do somehow get that shock out of the Federal Reserve suggesting that further easing is unlikely, this pair will absolutely crater.
