The EUR/USD pair had a negative close to the year 2013, and as a markets open on January 1, it appears that thin trading has reinforced the idea of an upward momentum in this market. I personally believe that this market is trying to break out to the upside, but the recent breakout would have been a bit of a “false breakout”, predicated upon illiquid conditions. This is shown by the strong shooting star that had formed a few sessions ago, but quite frankly I believe that was more or less end of the year position squaring more than anything else.
I do believe that the ascending triangle kind of shape that we see in this chart does suggest that we will eventually break out to the upside, but markets are going to be illiquid for some time, so I think it’s going to take a lot of traders coming back from their vacation more than anything else. Ultimately, it would not surprise me at all to see this market go to the 1.40 level, which was my target to begin with.
To taper or not to taper?
The main question that the markets are going to be asking now is whether or not the Federal Reserve will taper. The only have done a little bit, but also stated that they would keep interest rates low for a longer period of time than originally planned. Because of this, it’s likely that the US dollar will be on the back foot for a while, but we have to keep in mind that there is the possibility of deflation coming out of Europe as well. That will be very negative for the Euro, and as a result we could see a sudden reversal in this pair. Nonetheless, I believe that in the meantime we should see continued bullishness as the world continues to focus on what the Federal Reserve is going to do, and basically ignore what’s going on in the European Union. That’s been the problem with this pair over the last several years, the markets simply focus on one side of the Atlantic or the other. That has been why we have been so choppy.
