EUR/USD had a wild session as the Federal Reserve had a news conference after spending two days in a meeting to decide monetary policy. The Fed decided that it would continue “Operation Twist”, and as result bought itself some time in the current crisis.
The market seemed to have assumed that the Fed would ease further, and there was a bit of disappointment in the end. However, Mr. Bernanke left open the door for the Fed to step in and ease if situations warranted it, and as a result the “risk on” trade came back on in the final hours of the US session. In other words – it was a big mess.
There once was a time when a lot of Forex traders would try to trade the news. Granted, some still do, but there used to be a lot of retail traders doing it. Wednesday was a perfect example why only the foolish do now. We had a selloff in risk markets for about an hour, and then the machines on Wall Street went to work trying to “fade to the median.”
Spanish bonds
The charts seem to suggest that the 1.27 level is a bit of equilibrium in this market, and as a result is makes sense that the market consolidates here. However, we have Spanish bond auctions later today that will be highly influential in this pair. The Spanish bond markets have been very weak lately, and further bad news will more than likely weaken this pair.
.png "EURUSD Daily 62112")
The daily candle for Wednesday ended up being a shooting star, and the markets certainly look weak at this point. It is almost as if the Spanish bond auction is a possible point of inflection for the pair, and this could be setting up to become another leg downward in the making. Certainly, there are enough potential headwinds in the European Union to suggest buying this pair now, so I am simply looking for my next short in this pair. If we break the bottom of the daily range for Wednesday, I am selling this pair yet again. Also, it should be noted there is a potential bearish flag forming in this market, as shown on the attached chart.