The EUR/USD pair had another strong showing on Friday as the effects of the Federal Reserve’s QE3 announcement are still being felt in the currency markets as a whole. The Euro was one of the most heavily shorted currencies out there, and as such we have seen a wicked short-covering rally as well as new traders stepping into the market in order to buy the common currency.
The market has caught me and many other analysts out there by surprise truth be told. The Euro was just about given up for dead, but by the time the summer rolled around, this pair rose and rose and rose.
The area that we are in currently is heavyweight noise, as it is the general vicinity that we solve the descending triangle build which led market so much lower in the first place. However, it must be said that the Friday session did impress as we shot straight through the 1.30 level which I thought would have been more resistive.
Nonetheless, I still see this as a market that has a little bit more upside to it, albeit in choppy waters. The moves been absolutely parabolic and these moves do get pulled back and challenged sooner or later. Let's face it, the biggest reason this pair has moved the way it has recently is central-bank manipulation. The ECB is looking to buy everything it can in order to keep the European Union and its currency together, while the Federal Reserve is doing essentially the same thing in order to try and kick start the economy in the United States. Obviously, traders had not factored in the size and scope of the quantitative easing that was announced on Thursday out of the Federal Reserve.
Back and forth
I see that the pair could go to about the 1.35 level in the relatively near term. I think that there is a lot of choppiness in this general vicinity though, and it certainly won't be a straight shot up. Because of this, I would suggest that if you wanted to go long this pair you would do so on a pullback. However, I feel that there is still going to be a lot of headline risks in this pair coming out of Europe.
The Europeans will ease when it comes to their monetary policy. They simply need a lower Euro, and certainly will be doing things to make that happen. While the Federal Reserve continues to print Dollars, it appears they are no longer the only central bank that is so aggressive in doing so.
I believe in the short-term we go higher, but I also believe that eventually we see a nice reversal and we go back down again. We are obviously focusing on the United States right now, but will only be a matter times we start focusing on Europe again - and that's when we start falling.