AUD/USD: 0.9040EUR/USD: 1.3820The US$ is stronger across the board today after tapering continued by another $10 bio, as expected, with the market beginning to look towards the end of any economic stimulus by Q3 2014. Beyond that lies the possibility of a rate hike, and while Janet Yellen suggested that rates will remain unchanged will happen for a "considerable time", which, when pressed, she stated could be about 6 months. The DXY has turned sharply higher and it may be that the US$ has the legs for further gains in the days ahead.
Having previously had a quiet session, the $10 tapering announcement from the Fed saw the Euro reverse sharply to a low of 1.3809 against a rampant dollar, and although Janet Yellen, in her press conference was not all that hawkish, the market is now focusing on the possibility of a rate hike early next year, possibly around 12 months from now. It all seems a bit of an overreaction to me, but the markets in general are running scared, particularly in the bond market where yields have moved higher and in equities, which do not like the sound of potential rate hikes.
The DXY has also reversed sharply and is back at 79.98, above the 200 WMA, having been to a session high at 80.11, and looking as though it may have made an important base above the important support at 79.00/10.
Technically, we are now back, well below 1.3900 and the resistance at 1.3940/50, now rather distant, remains in place ahead of last week’s high of 1.3966. There are plenty of stops above here, but equally good selling interest protecting barriers ahead of 1.4000.
If/when the Euro finds the legs to head above 1.4000, which is now looking a bit distant, there is not a lot to stop it heading on to the next major Fibo resistance at 1.4240 (76.4% of 1.4940/1.2041) which was also the Oct 2011 high and if Yellen is overly dovish today, it could be the catalyst to help the Euro on its way as the dollar comes under further pressure. The daily and weekly momentum indicators suggest that this might be the direction to watch.
Nearer home, 1.3850 is now minor resistance and I would be rather doubtful of seeing 1.3875 today.
We have now taken out support at Fridays low at 1.3847 (1.3850: 23.6% of 1.3475/1.3966, 200 HMA) and 1.3835 (daily tankan), having seen a low of 1.3809. Back under 1.3800, 1.3780 (38.2% of 1.3475/1.3966), 1.3760 (daily Kijun) and then 1.3720 (50% pivot of 1.3475/1.3966) will see buyers ahead of 1.3700.
Economic data highlights will include:
European Council meeting, German Producer Price Index (MoM) (Feb), US Philadelphia Fed Manufacturing Survey (Feb), Existing Home Sales (MoM) (Feb), Bank Stress Test Info
Jim LanglandsFX Charts www.fxcharts.com.au
