FED comments on QE3 push the USD lower
The euro-dollar pair closed in NY Monday around 1.2884 after the rate had pushed up through the day to a high set during the New York session around 1.2901 before pulling back into the close.
The FED speakers are on this week, USD bulls beware
The pair pushed up during the Asian session to probe stops above and set a new high around 1.2904 only to pullback and stall below 1.29 into the European open. Offers into 1.2905 provided good opportunity to sell puts for binary options investors. However they should be aware that there is a wall of stops above 1.2905 – around the 1.2910-15 area which could provide fresh impetus for the bulls and take the pair testing strong offers around 1.2940.
We favor call buying if the rate tops 1.29 again, however the time period will be difficult to predict. An hourly close above 1.29 should be sufficient for the bulls to take charge.
Japanese finance minister Amari sought to clarify his remarks over the weekend about the level of the Japanese yen exchange rate. This triggered some demand for the USD pulling the EUR/USD towards 1.2860, where fresh demand put it back on track to test above 1.29.
The downward move in the dollar was triggered by comments from Chicago’s Federal reserve president Charles Evans, who stated that the U.S. Federal Reserve could keep on purchasing bonds in full size as previously through the summer, but an end could be in sight in the autumn if by then the FED is confident that the pickup in employment is on a full swing and is sustainable.
Whilst observing a mild improvement in the jobs market since the 3rd chapter of the bond buying program already has begun some Fed officials are voicing their opinion for a reduction in the pace of purchases. The U.S. economy has added an average of 200,000 jobs per month during the past six, and unemployment has dropped back to 7.5 percent, down from 8.1 percent before the announcement of the latest bond-buying program.
In news from the EU – a preliminary version of a law that a the group of European Union lawmakers voted for on Monday would protect small depositors from saying “adieu” to their savings in future bank rescues, but depositors with more than the insured amount of 100,000 euros could, and according to the EU regulators should suffer losses.
This corresponds to the deal in Cyprus and it’s fair to say that some countries have debated the use of deposit guarantee funds, but others have dismissed this text because this could put at risk small depositors.
Looking at the chart we can conclude that a sustained hourly close above 1.29 is likely to trigger a rally towards 1.2940-50 area where stronger offers are in place. So we favor call buying if this level is broken. However should we observe a pullback we should pay close attention to the trend line supporting currently around 1.2870.
A sustained break below could sell the pair back down to test levels around 1.2860, followed by 1.2840, and ultimately Friday’s low below the figure – 1.2796. The calendar today is light, however attention should be paid to comments from FED’s Bullard around 15:30 GMT.