The euro continues to show encouraging moves for the interest of buyers, surging to a new 3 ½ week high after investors joined forces to snap the price back up away from a retested $1.30 area earlier Tuesday. The next round number at $1.31 is currently acting as temporary resistance for the pair ahead of Europe.
Upbeat German data saw the euro regain the bid tone Tuesday, only to firm up after disappointing U.S. building permit numbers, which adds to the negative U.S. NFP report from last Friday. While the calendar is full of low-volatility indicators, in theory, and with the risk headlines of Cyprus and Portugal having abated in the last 24 hours, traders' main focus today (Wednesday) will be the FOMC minutes, which typically provides additional insights into the current Fed's line of thinking regarding its stimulatory program.
We believe FX traders should take the FOMC minutes with a grain of salt.
The minutes will be from the Fed meeting held on March 19th/20th. This was right after the huge jump in non-farm payrolls and the big rise in retail sales so the Fed will most likely be more optimistic with talk of varying asset purchases gaining traction. Since then, we have seen a huge pullback in job growth, decline in consumer confidence, slower manufacturing and service sector activity. The only unambiguously positive development has been the persistent rise in U.S. stocks.
Looking at where the U.S. Dollar index stands at the moment, after being aggressively rejected off of 83.50 supply, the index faces next demand at 82.00.
As our team notes:
Despite [that] the area has had multiple tests, which diminishes the buying power - as more unfilled buy orders get filled - notice the bounces have so far been firm, communicating that imbalance between buyers and sellers remains strong. If 82.00 gives in, picture suggests we may have a period of days where broad USD selling is the dominant theme until 80.00 is encountered, an area where the next stack of sizeable buy orders may be found.
What this means for the EUR/USD? The pair is on a healthy ride up, having cleared $1.3050/80 supply, suggesting the sky has gotten more blue now for the interest of buyers until the next stack of institutional sell orders, likely to be faced at $1.3140/60.
Our team explains:
This $1.3140/60 is a semi-fresh level - tested once with imminent rotation lower - where a significant amount of unfilled sell orders are expected. It wouldn't be surprising to see the price be repelled again at that level. On the downside, demand is spotted at $1.2932/15, post NFP reaction.
Intraday pullbacks are likely to see sizable bid orders lying around $1.2932/15, take-off level post last Friday's payroll number.
Kathy Lien expects the EUR/USD rally to stall around $1.3130/40, "where the 50 and 100-day simple MA converge", she says.
In view of Karen Jones, Head of FICC Technical Analysis at Commerzbank: "We would allow for a deeper retracement into the $1.3111/80 band and possibly $1.3225 (50% retracement), where we will look for signs of failure and the resumption of the down move".
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.