A question never explored addresses “Forward Guidance” as public relations. Along the same lines is a just released BOE paper on Forward Guidance / Interest rate message as stimulus. When Yellen held a 12:00 press conference, she bumped against central banks Noon Day. Yellen’s words were viewed as positive because DXY traveled higher and market writers wrote of the positive market effects inside Yellen’s Guidance. Meanwhile, DXY traveled higher as a result of the price and not as a result of Yellen. DXY had an equal chance to drop. The price is the overall market dictator against any central bank speech or economic release. The only question to the price is where is the end point.
Draghi’s words were viewed positively yesterday because EUR/USD skyrocketed higher. The ECB took EUR/USD up in late morning then the non interest rate move over the past 5 days allowed EUR/USD to attain higher levels in late afternoon.
Yesterday morning, short term EUR/USD was done at 1.1220’s and faced a tough resistance line at 1.1239 then came 1.1250’s and the end point at 1.1300’s.
By afternoon, the end points changed to 1.1400’s and EUR stopped at 1.1350. The reality of the price was the overall dictator as the price had an equal chance to fly lower due to Draghi’s mixed message speech. Fascinating how this works in action. Interested can view my blog for the actual blow by blow throughout the day.
Yesterday Draghi stated deflationary pressures were easing yet stimulus remains. Weeks ago, Draghi informed a substantial amount of stimulus was needed over the long term and he was at the ready. GDP may look good at 2% but current 16311 vs 18573 throughout 2015 to 2016, hardly warrants rosy scenarios. My message is treat Draghi and his public relations with the same skepticism as Yellen and view yesterday’s prices as grand opportunities for the smart trader crowd.
At 1.1370’s and anywhere in this vicinity , EUR/USD is miles overbought from averages 5 to 253 day. From a daily perspective, EUR is overbought. Draghi’s dreams offered an opportunity.
Three resistance lines are located at 1.1373, 1.1402 and 1.1415. Shorts must clear 1.1331 then comes 1.1260’s yet today’s bottom is located at 1.1316. We’ve seen 1.1300’s many times before and each time, EUR dropped significantly because it bumped against the multi month trend line. Where the exact multi month trend is located is unknown but it must be close and we must assume the current EUR price is below.
The overall base of the bottom EUR line is located at 1.1045 and this line can travel to 1.1022 as EUR depends. This is the big break line to see far lower EUR. This line is equally overbought as the moving averages.
Regardless, EUR is miles overbought. My recommendation is short and sell rally strategy. If EUR/USD is viewed from USD/CHF, the CHF break line is 0.9524 and close.
Brian Twomey Again Trade signals available for interested.