If there is one thing that can be said about forex trading is that as traders we are never really wrong, but simply right at the wrong time! For those of you who follow my regular forecasts at FXStreet.com will know I participate in a weekly forecast for a number of currency pairs, and in my forecast for the week ending 6th September for the eurodollar I was strongly bullish but was in a minority of ONE, with everyone else heavily bearish.
The majority view was for the eurodollar to fall further towards 1.30 or lower, whilst I maintained my lonely bullish stance. Today's price action has therefore come a day late, but nevertheless extremely welcome with the pair soaring over 100 pips on the day, and looking to close with a wide spread up candle in the 1.3250 price area.
The question now is how far the current bullish tone is likely to extend for the pair, and much will depend on the stiff resistance the pair is running into, and which is clearly defined on the volume at price histogram (as shown on the left hand side of the chart).
The resistance starts at the current trading level at 1.3270 and extends through to 1.34, and represents a deep and well defined area. Whether the pair is able to break through will largely depend on the associated volume, and it goes without saying that any move beyond this region will require high or even ultra high levels of flow. Over the last few weeks these have been moderate and reflecting the summer trading season, but as markets re-engage we should expect to see these rise accordingly.
What seems likely is that the eurodollar may continue higher, but run out of steam at 1.34.
From a fundamental perspective, last week's NFP numbers were expected to provide the trigger for the start of the FED's much anticipated taper program. However, given the poor number reported and downward revision of earlier releases, this has thrown into doubt any immediate start of this program, and which would have been US dollar positive. The German election too on the 22nd September will also play its part, and whilst Angela Merkel is expected to regain power, and so maintain the status quo, what is also interesting is the increase in big league US investors such as pension funds buying $65bn of European stocks in the first six months of 2013.This represents one of the highest inflows in over 30 years, and representing a huge vote of confidence in the euro.