This week, the FOMC is expected to finish off tapering QE. Whiles this step is highly expected anyway, the actual announcement can help the USD revive its strength after an October of consolidation. It has already shown some signs last week. Let’s take a look at the EUR/USD, GBP/USD, and USD/JPY and assess their technical conditions heading into the key event risk.
The EUR/USD consolidated in October, rallying from 1.25 up to 1.2887 before retreating. After some sideways action, EUR/USD slid last week, giving several signs of a bearish continuation: 1) Price broke October’s rising trendline. 2) Price has returned under the 200-, 100-, and 50-period SMAs in the 4H chart. 3) The RSI has dipped below 40, showing loss of October’s bullish momentum. Entering the weekend, price started to hang about 1.2650, holding above 1.26. Still, it will be starting the week bearish, with downside risk to 1.25.
After the week, if the FOMC does complete tapering and the Eurozone inflation number’s don’t impress, the EUR/USD has a chance of testing and maybe breaking this 1.25 area. However, if after the week if over, price holds above 1.26. The consolidation might not be over. A break above 1.2750 would be an additional sign that there is more consolidation ahead.
GBP/USD ended last week at the crossroads. It held below 1.62 and the 200-period SMA in the 4H chart. Most importantly, the high last week was lower then a previous key high, as we can see in the 4H chart. This suggests the bears are still in charge even though it has been choppy. The RSI however is still holding above 40, showing that it has not gotten rid of recent bullish momentum.
If price fails to clear below 1.60, there is still upside risk, and if price pushes above 1.62 after the FOMC meeting, and the USD is broadly weak, we can expect a strong bullish correction in the GBP/USD. However if price can stay below 1.60 after the FOMC event risk, look for a bearish continuation toward the 1.5875 low on the year with risk of further downside.
The USD/JPY is showing signs of bullish continuation. After breaking above October’s falling trendline USD/JPY extended higher last week, pushing above the 108.00 handle, and above the 200-, 100-, and 50-period SMAs. The 4H RSI tagged 70, showing bullish momentum.
The 107-107.50 area now becomes a key support area. If after the FOMC event risk, price can stay above this level, it is poised to test the 110-110.08 high on the year. Below 107, USD/JPY is still in the consolidation mode it has been in throughout October. Previous Post by