Thursday, August 03, 2006

Daily EUR/USD thought

What happened today?

Although the ECB raised rates as expected, the Euro could not clearly break the 2800 level. Remember, this rate increase was already priced into the market so it was not a surprise when the ECB actually made the rate decision. Traders have taken a pause because of the Non Farm Payroll report tomorrow.

Looking Ahead

The NFP report will be watched very closely because it will give a clearer indication as to what the Fed will do regarding the US interest rates. The US interest rate decision will be a big event as this is NOT priced into the market. If the US does raise rates, look for the dollar to gain some ground against the Euro. As we get nearer to the rate announcement, it looks like speculators are leaning towards the idea that the Fed WILL increase rates. Interest rate futures show that there is a 41 percent chance the Fed will increase rates next week. This number has been going up as we get closer to the rate announcement. Whatever the Fed does, I would expect to see a pretty good move in the EUR/USD.

Technically Speaking..

You can see on the daily chart that the Euro cannot break the 2800 level. I would wait until there is a good break or bounce off of this level before taking any trades.

On the 4 hour chart you'll see that the price is still bouncing within it's most recent upward channel. Again, the key level is 2800. If the price makes a good break of this level I could see it going to at least 2860 with 2900 and 2940 as agressive targets. If the Euro moves down to 2750 I could see it going to at least 2700 which is right above the 38% Fibonacci level.

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