The EURUSD has extended the range in early NY trading on the back of an announcement that Greece has formed a government. Since then the price has rotated back lower – taking some of the early bullish enthusiasm away. The real fireworks are to come when the Fed announces their rate decision at 12:30 PM ET.
The range so far is a narrow 59 pips. The average range over the last 20 days is 128 pips. So there is room for an extension (higher or lower). However, with the key Fed event later today, that extension is likely not to occur until the Fed decision. In other words, I am not expecting much in this mornings trade.
From a technical perspective, the price surged higher yesterday in a trend type day in the NY session. That trend transitioned into a correction/non trend overnight with a correction to the 38.2% of the move up from the weeks low (see hourly chart). That level comes in at1.26628 and the low for the day came in at 1.26607.
Holding this level helped the pair inch higher into NY (see hourly chart above). On the topside the next target comes at the trend line connecting the tops from the week. That level comes in at the 1.2722. The high from yesterday at 1.2729 and the weeks high at 1.27457 are the next obvious upside targets. The 1.27441 levels is also the 38.2% of the 2012 high to low trading range (see daily chart below). A move above this level should solicit good momentum buying with 1.2784 (50% of move down from May high), and 1.2825 (channel trendline on the daily chart) the next key targets.
If the price can not extend above the topside trend line (at 1.2722), look for a rotation back lower. The 1.26997 is the 50% of the last leg higher in the pair. The correction off the new high, came down to this level (low was 1.27004) and bounced, keeping the bulls in charge. A move below this level should turn the intraday bias back down. The 100 bar MA (blue line in the 5 minute chart) – at 1.2689 currently- is also short term intraday support. A move below muddies the intraday water and although the bias will swithch to the downside, I would expect two way range trading to prevail until Fed time.
The real action will occur post 12;30 and will be dependent on whether the Fed is more dovish (dollar bearish) or hawkish (dollar bullish). With expectations more ambiguous this time, traders will likely have more opportunity after the event, then before. (PS, the Central Tendencies will be announced at 2 PM with Bernanke speaking at 2;15 PM ET)
