The EUR/USD pair did very little during the session on Friday, but what’s interesting is that we formed a neutral candle just underneath the 1.34 handle. Remember, we have been talking about how 1.34 is significant in this pair, and daddy could determine whether or not the pair breaks out to the upside. That being said, we feel that the next couple of sessions will be very important to the future of the Euro.
You have to keep in mind that the European Union has just come out of recession, and as a result it makes sense of the Euro would appreciate. However, most of the world is focusing on the Federal Reserve and whether or not it will taper off of quantitative easing. A lot of people in the marketplace believe that the Federal Reserve will try to taper off of quantitative easing during the month of September or October, and as a result it has the Dollar somewhat bid up. However, we feel that this market more than likely wants to go higher, so it will find an excuse at this point in time.
On a daily close above the 1.34 level, we believe that this market will first try to hit the 1.35 handle, which of course is a large psychologically significant number. Beyond that, we would expect the 1.40 and possibly even higher. This breakout would be significant enough that we could see follow-through four months, if not years. However, it has to be accompanied by the Federal Reserve stating that they will not taper off of quantitative easing, which has been somewhat priced into the marketplace in various commodities.
Going forward, we think that the next couple of weeks will be vital for the future of this pair, but keep in mind that a lot of knee-jerk reactions can happen between now and the middle of September. The Federal Reserve should continue to be the focus of the marketplace, so headlines of course will ruffle the feathers of traders around the world. Beyond that though, we think that the liquidity issues at this point in time will more than likely make trading very difficult.
Written by FX Empire