Now that the Federal Reserve has stepped away and released its announcement, we all know that the Fed has become a bit more dovish. However, just the idea of more easing will be enough to kill off the value of the dollar. They will obviously have to do something and have laid out quite nicely their intent to perhaps do so if the conditions continue the way they have.
Mario Draghi suggested the previous session that the ECB was willing to do more bond purchases, one of its favorite forms of quantitative easing the day before the Federal Reserve meetings concluded. I believe this was a preemptive strike to keep the Euro from appreciating too much after a dovish Federal Reserve, which was probably one of the worst kept secrets in the financial world.
By doing so, the EUR/USD pair has rallied a bit, but not as much is one would expect. Traders around the world are starting to see several banks ease again, and this could dictate what happens with the rest of the summer. Granted, this is generally a choppy pair but I suspect it’s about to get worse.
With the 50 day EMA starting to turn higher, the 1.11 level underneath offering significant support so far, but at the same time the 1.1350 level above offering drastic resistance, I think we are going to carve out a range for the summer. I also believe that eventually this market will turn around and go to the upside as the Federal Reserve will actually start to cut rates. At this point, most market participants believe in multiple rate cuts, and as the currency markets are forward-looking instruments, it would make sense to see the Euro gradually recover against the US dollar as not only do we have to price in this attitude, but we are also at historically cheap levels.
The rest of the summer I expect to see this market bounce from the 1.11 handle and sell off every time we reach towards the 1.1350 level. If we do break out to the upside, the next stop will be the 1.1450 level which has 50 pips of resistance extending to the 1.15 level. Once we break above the 1.15 level, this market is going to go much higher and will probably do so after several rate cuts present themselves out of Washington DC.
In the meantime, get out your range bound system trading algorithms and indicators, because you going to be using them for the next couple of months.