EUR/USD: 1.3065The Fed have done as expected and raised the total QE to $85 bio per month, by adding an extra $45 bio in Treasury purchases to make up for the shortfall due to the expiry of Operation Twist, adding to the $40 bio pm that is already being undertaken. The Federal Reserve stated that they will adopt economic thresholds and will keep rates exceptionally low, so long as unemployment is above 6.5% and inflation below 2.5%.
In an otherwise relatively news free day, the Euro has spiked higher following the announcement and in Washington, the Fiscal Cliff talks continue without any apparent progress, while in Europe the market is keeping one eye on the Italian political situation following Mr Monte's resignation.
Technically, the Euro is currently near its session highs and the 4 hour charts suggest that there is enough momentum to carry it up towards the 1.3120 target. A break of this would propel the Euro on to the 17 Oct high at 1.3139 and then to 1.3168 (14 Sept high). Beyond this, the medium term target would be the 1 May high at 1.3283, although this is some way off.
The dailies are still rather flat, so I do not think we should be getting too carried away on the topside, and although I can see the momentum carrying us a bit higher, it looks as though it may be a choppy ride. The 4 hour Stochastics and RSI's are pretty overbought and therefore a session or two to allow these to unwind a little may be required. If we do get lucky enough to see 1.3120, I would consider lightening up on any long positions, or at least raising stops in order to lock in profits.
A return to the downside would see bids now at 1.3040 and in the short term I don't think we are going too much under here. A break though would see a return to support at the short term rising trendline which coincides with the minor Fibo support (38.2% 1.2875/1.3096) at 1.3013. If we go back below 1.3000 now, it would look as though a minor top may be in place and which would suggest a return towards 1.2900 and possibly lower, although this currently looks to be the less favoured scenario for the next couple of days.
Economic data highlights will include:
ECB Monthly Report (Dec), US Retail Sales (MoM) (Nov)
