EURUSD at Critical Juncture

By: Gary Deduke | Thu, Oct 26, 2006
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For months we have avoided the euro like a plague, citing the unresolved conflict between the inevitable end to Fed tightening and the build-up of net long positioning by macro traders leading up to this fact. With a 3rd consecutive FOMC decision to stand pat at 5.25%, the cooling economy seems to be of greater concern than the persisting inflation, which the new Fed Maestro now believes will take care of itself.

On the eve of Q3 GDP figures from the US, the first measure of economic growth since the end of removal of accommodative policy by the Fed, today marks a pivotal moment for the dollar. Will USD succumb to the likely sub-2.0% GDP figure and break out of the downward channel en route to testing this year's low? Or will the down-sloping dollar index channel persevere in preservation of the greenback post-Fed resilience? The former is our preferred scenario as it falls in line with our wave count projecting a wave 5 fall in the dollar index to 83, however the latter is also plausible based on the glaring technical alarm shown below.

The most actively traded currency against USD is the perfect gauge to reflect the ambivalence of this market at the critical 1.27 level. However, it is hardly accidental that the technicals here truly echo the point of fundamental equilibrium. As you see below, 1.27 marks resistance on several critical measures - 100 day moving average (red), declining and minor rising channel resistances, and 1 SD Bollinger Band (blue).

We plan to watch for the direction of the market after the release of the GDP data as that initial trend is likely to set the tone for sessions to come. Having initiated a long position and alerted our subscribers via our SignalZone service last night, we now tighten our stops to protect our profit and let our forecast for a post-GDP dollar fall materialize.



Gary Deduke

Author: Gary Deduke

Gary Deduke
Senior FX Analyst
fx Money Trends

Gary Deduke is a Senior FX Analyst at FX Money Trends, a research firm catering to professional traders.

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