Stuck in the guessing game
What do we know.fundamentally?
- ECB started QE on March 9th and they are going to buy 60B per month until September 2016
- Fed got rid of "patient" from the FOMC statement on March 18.
- Fed officials want to see more data before tightening
- When Fed start to tighten will not be on a set course
- US economy slowed 1Q
- The US is coming off a weaker employment report
- The EU economies are showing some improvement but from a low level
- The last commitment of traders showed record shorts.
Since the ECB began QE and that genie was let out of the bottle, the EURUSD had one final leg to the downside that took the price to the low at the 1.0461 level on March 13.
Since the FOMC decision when they took out the word "patient", except for 26 hours the day after the decision, the price has been above 1.0714. In fact, for 14 trading days the price has been between 1.0714 to 1.1051
The 100 bar MA on the 4-hour chart is moving higher. This is something new and potentially bullish. The price of the EURUSD has moved above the 200 bar MA on the 4 hour chart for the first time since December 17th, but it did back off from the break in trading yesterday (see green line in the chart above). In trading today we are back below the 100 bar MA on the 4-hour chart (see blue line in the chart below).
The Fed in their minutes today were full of "a little of this and a little of that" with uncertainty on when liftoff might be. Adam pointed out that analysts are trying to figure out what a "couple", "several", "a few", and "others", exactly mean. What it means is there is not a consensus and that muddies the water for trading.
With the ECB QE a given now, and the Fed stuck in a guess game mode, the EURUSD has entered a non trending phase. Eventually , non trending turns to trending but can we anticipate that? I am not sure what we learned today was anything to bank on - at least in the short term as the US data sorts itself out. The Fed needs the numbers to give them the courage to pull the trigger..
What about the ECB?
The ECB meets next week and needless to say, they will be on the sidelines with regard to policy. However, what will Draghi have to say in his press conference? Is he likely to say that things are getting worse or are things getting better? I would say, he is probably more likely to say better. The EU is coming off a low base, they will have the benefit of a lower EUR, stocks are higher, oil prices are lower. Rates are at low levels. If there is a time for Draghi to.say the conditions are there for a recovery, it is now. That should keep the EURUSD at least supported.
Are the conditions right to buy the EURUSD? From a technical perspective, the 1.0756-59 level is support (50% and the low from September 2003). Today's low came in at the 1.0762 level. The 1.0714 is another support.
If the market is to trade in a range, this should be an area to buy (with stops below).
On the topside the broken trend lines and the 100 bar MA on the 4-hour chart will need to be broken to help take the pressure off the downside. If that can happen the upside potential can open up.
Look for patient buyers on dips to 1.0756-59. If the level holds, that is good news. If the level breaks, there may be another look at the 1.0714 level. This area should find support though.