The EURUSD is steady as she goes, as it awaits the decision by the Fed. The concensus is for a resumption of some sort of Quantitative Easing (should lead to a weaker dollar but not guaranteed). However, there are enough detractors who are looking for no change to make it interesting indeed. As a result, traders need to be aware and prepared by understanding the key technical levels that will either guide a move higher or lower.
The pair is currently trading near unchanged on the day after moving up from the close (at 1.2898) and once again finding willing sellers against the 61.8% of the 2012 trading range at 1.2933. The high reached 1.2930.
Looking at the daily chart, the ceiling at the 61.8% (at 1.2933) is balanced by a floor against the underside of the broken trend line connecting the highs from February, April, and May at the 1.2837 level and the 200 day MA at the 1.2828 level today. I would expect that by the end of the day one of those two extremes (above 1.2933 or below 1.2828) will be breached (by the way, the price is hanging around the midpoint of those two extremes at the 1.2880 area).
(As a guide, at the last FOMC rate meeting on August 1, the pre-announcement range was 57 pips (it is 49 pips currently). The day ended with an extension to the downside and a range of 118 pips)
Looking at the daily chart what other levels are important/in play. Since the price can go either way on the announcement and market interpretation, I will outline levels on both the upside and downside that traders should be aware. If a level is broken, look for the progression to the next level.
On the topside, the following are the progression for the target levels:
- 1.2933 – The aforementioned 61.8% of the 2012 trading range. This is key and should lead to further upside momentum.
- 1.2973 – Spike low from Feb 16th
- 1.2993-1.3010 – Low price from Feb, March and April.
- 1.3064 – Low close in February, Low close in April
- 1.3064-1.3079 – Gap yet to be filled from May 2012 (don’t all gaps get filled?)
- 1.3148 – 38.2% of the move down from the May 2011 high
With the low for the day currently at 1.2882 if the range extends toward 118 pips seen at the last meeting, that would take the price right to the 1.3000 level. Of course the days range could be extended – as could the 118 pip range on a momentum driven market (the market may still be short). However, I would expect that the first test of the 1.3000 area should be a tough nut to crack today
On the downside, the hourly chart will come more into play. Below are the progression of steps on a move in that direction.
- 1.2878 – Close support comes in on the trend line off the weeks low prices. This line is moving higher, but a move below the line and staying below should give traders the clue that bias off the news is to the downside
- 1.2866 – 38.2% of the weeks range
- 1.28446 – Midpoint of the weeks trading range
- 1.2830 – 100 hour MA. This level is between the underside of the broken trend line on the daily at 1.2837 and the 200 day MA at 1.2828 (see daily chart). This is a key level for bullish/bearish bias.
- 1.2808 – Trend line support of the September 5th and 6th lows.
- 1.2763/1.27695 – 50% of the years range/38.2% of the September range
- 1.2713-17 – 200 hour MA and 50% of the September range.
Risk (liquidity, event and market risk) through the report will be a peak. Not only does the decision have some uncertainty, but the question of what is already priced in should make the trading difficult. Traders, not looking to get in a “bar fight” over the first reactionary period (it is like betting red or black in my mind), can use the key technical levels for the trading clues.
In summary, assuming we stay contained between now and the decision time at 12:30 PM ET, the first key topside clue will come on a break above the 1.2933. Move above it and stay above it and the market can work toward the next targets. On the downside, moving below the 38.2% and then 50% of the weeks trading range at 1.2866 and then 1.28446 should open the door for a test of the key 200 day MA at 1.2828.
Good fortune with your trading.
