Today the Federal Reserve begins its two-day meeting that will have a main point to abandon the 6.5% unemployment threshold and move toward a more qualitative guidance using a wide range of economic indicators that will be used for deciding when to tighten monetary policy. Tomorrow is Federal Reserve Chair Janet Yellen’s first press conference where she is expected to outline what she initially thinks will be required to raise interest rates. Wage growth and hours worked will be important readings going forward. It may be a non-event as expectations are likely to remain that the Fed’s first rate hike post the financial crisis is to be 18 months or more away.
In Europe, the German Constitutional Court confirmed the legality of the ESM, but the euro did not rally as German ZEW had a big miss with a 46.6 reading verse an eyed 52.8 and Eurozone posted a smaller trade balance in January.
Last week, EUR/USD made a new 29-month high as the pair maintains a 6-week rally. Since price tested the 50-day Simple Moving Average (SMA) on February 27th, the bullish trend has been fairly intact. It was on that day that Janet Yellen testified and explained that the soft data was probably stemming from adverse weather. The euro rallied despite the Fed expected to continue to taper its asset purchases.
The daily chart is identifying a bearish butterfly pattern that may form just above the psychological 1.40 level or at the 1.4150 area. A key surge above 1.40 will be beneficial to the banks as several traders have key stop losses above that specific region. We will look for a bullish thrust to test 1.40 and possibly look to short the euro if we see a move above 1.4150. The key range that ECB would like to see the euro trade is between 1.30 and 1.40. We may hear more comments from ECB memebers if we start to see the euro remain too strong.
The trade: Buy EURUSD at 1.3900 with a stop loss at 1.3847 and a take profit at 1.3999. The Risk/Reward Ratio is 1:2
Edward J. Moya
WorldWideMarkets Online Trading