EUR

FROM MY LATEST PREMIUM PIECE

Yesterday we presented the fundamental backdrop to Bernankes impact on EURUSD. Here is a technical approach on potentially further run-up in EURUSD.

Is EURUSD Nearing a Golden Cross?

Golden and Death crosses in technical analysis do not always have much relevance, but in some widely watched markets, such as EURUSD, the pattern has proven effective in 6 out of 7 occasions since 2008.

Golden Crosses occur when shorter-term moving averages cross above longer-term MAs, leading to a considerable uptrend in the price. Conversely, a Death Cross occurs when the shorter-term MA drops below a longer-term term MA.

In the case of EURUSD, golden and daily crosses involving 55 and 100 DMAs have proven useful in 6 out of 7 occasions since 2008.

Today, the EURUSDs 55 DMA (now at 1.3142), is rising towards the 100 DMA (1.3176), suggesting the risk of a positive cross-over looms large. In order to attain clear Golden Cross formation, the cross-over must hold for at least an entire week.


Similar to August 2010 and May 2009when QE1 & QE2 began


The current price dynamics are highly similar to August 2010 (box 4) and to May 2009 (box 2). In each case, the 55-DMA rose above the 100-DMA, while the 200-DMA stood above both, albeit pointing lower. Fundamentally speaking, in each of these cases, quantitative easing from the Fed was the main catalyst to the euros rally and USDs decline. In May 2009, QE1 had been in place for 2 months, while in August 2010, markets began picking up signals of QE2, which eventually materialized in November 2010.

EURUSD was able to close Mondays NY session above the $1.3330s, which we deemed necessary in yesterdays note to maintain chances for further upside, and paving the way for $1.35. Euro bulls now require a daily or a weekly close above $1.3520-25 so as to reverse the monthly downtrend prevailing since last April. Failure to close above 1.3330s may maintain the selling-the-dips approach and risks recalling 1.30 foundation.

Regardless of the aforementioned technical dynamics, the Federal Reserve remains unlikely to head off an outright QE3 (which would be bullish for EURUSD). A form of restricted QE remains the most likely outcome, especially as inflationary pressures risk being more than just transitory. Keeping Iran tensions and summer driving-season aside, Fed dovish Fed rhetoric shall led commodities a hand via prevailing USD weakness. EURUSD is far from the preferred trade in selling the greenback, but the pair may have the technical foundation to prevent a decline below $1.29 for now.

The charts and trading details are all in here:http://ashraflaidi.com/products/sub01/access/?a=620

Ashraf