The EUR/USD is not done consolidating in October, and not ready to continue the downtrend it has been in during the past several months. The 1H chart shows that price is surging after slowly drifting up in a channel in the past few sessions.
(click to enlarge)
The 1H chart shows the reaction to the data, which accelerated above the channel resistance, and cleared above the cluster of 200-, 100-, and 50-hour simple moving averages. Meanwhile, the 1H RSI popped up above 70, showing bullish momentum in this time-frame.
Testing Price Top:
As price moves higher, last week’s price top will be tested. If EUR/USD can find sellers in the 1.2770-1.2790 area, the top is respected, and a bearish continuation would be suggested. A break above 1.2790/1.28 will add to the case of more bullish correction in November.
Now, let’s take a look at what just punched the USD in the gut.
US Durable Goods m/m (September): -1.3%
Core Durable Goods m/m (Sept): -0.2%
This is the second month in a row of bad data. The data missed forecast and drives doubts about whether the FOMC will raise rates by mid-2015. The August dip in the durable goods reading was understandable because we came off unusually strong orders for aircrafts in July, which of course did not sustain in August. However, continuing weakness in demand can keep the FOMC at bay from raising rates mid-2015, so the market is scaling back the USD strength we have seen in the few months before October.
Anticipating the FOMC Risk:
The Federal Open Market Committee will complete a discussion and vote on monetary policy by tomorrow 10/29. This is the main event risk this week, and is highly anticipated because the fed is expected to completely remove QE.
The question will immediately move to whether the mid-2015 projection needs to be adjusted. The most likely scenario is that the fed will not introduce new consideration in its forward guidance, but if there is any bias, it might be dovish because the US economic recovery turned a bit vulnerable in the past month, and global uncertainties continue to build up.
If EUR/USD breaks above 1.2790, then above 1.2835 after the FOMC risk, the rally can sustain into 1.29. If we get a pullback, see if price can hold above 1.28 to confirm the bullish correction scenario.
Limited Bullish Outlook:
Still, unless the FOMC convinced the market it will not raise rates until after mid-2015, we should expect sellers from 1.2888-1.29 area. The next key resistance will be 1.2995-1.30, which is like the last line of defense for the bearish outlook. The daily chart shows that 1.30 is reinforced by a falling trendline and a previous resistance pivot. That should be the strongest bullish outlook if mid-2015 rate hike projection is still valid.
Bearish Continuation Scenario: Now, we talked about the bullish correction scenario. The bearish continuation scenario on the other hand might constitute a failure to clear above the 1.2887 October-high, and a break below 1.27.
If the bearish continuation scenario occurs after some bullish correction towards 1.29 or 1.30, then a break back below 1.28 might be an early signal for bearish continuation.
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