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EUR/USD Targets 1.25

Currencies / Euro Dec 07, 2010 - 01:01 AM GMT

By: Bari_Baig

Currencies

Last week on Dec 2nd after the ECB’s press conference Euro found additional strength on news that three months were being extended in the QEI program and by Friday’s close Euro had traded upward to 1.343s. Euro then rallied from 1.298s to 1.343s which is 5 Big figures and we had termed the move a bounce even before it took place as we wrote in our article [The Good Days [Euro] dated Dec 1st on www.marketprojection.net and [Euro, USD, Gold, and Stock Index Analysis] on Dec 1st on www.marketoracle.co.uk that “Edited note “summary”: coming two days would be good for Euro and we are “Bulls” as we find Euro extremely over sold at this point however, after 2 days the downside opens up even more and we’d therefore sell on strength” regardless of what we had anticipated we are willing to give all this credit to Mr. Trichet. Why? Because the only obvious effect of Mr. Trichet’s statement was on Euro and it too was further aided by weak employment data from the U.S on Friday which resulted in U.S Dollar falling fast.


Today, Mr. Bernanke’s interview was televised on CBS which was recorded a week earlier but the contents of the interview were very much kept in secret until the broadcast today. Mr. Bernanke explained the monetary policy and also shed light on the fact that “if” QEII proves insufficient then FOMC would not hesitate to consider QEIII. This is big and something which we believe everyone should pay heed to. We might not second the potential proposal of QEIII but we surely would not try and fight it out because Fed has more liquidity available than the largest of the largest funds therefore the outcome of this head butt competition is surely in Fed’s favor. As we have written previously further easing by Fed means more money coming into equities, into commodities, into all investments primarily and from there making its way into actual manufacturing plants which would increase employment and subsequently increase productivity to match the rising stock price.

A simple comparison then would be of Green Back versus the Euro. The bounce of Euro which we had projected earlier in our article mentioned above is now on its way to correction. Euro has been following a downward channel since start of early November therefore the probability of Euro breaking that channel on what Mr. Trichet had to say, seem nonexistent.  The single European currency has far more worries at hand such as the debt crisis and talks of increasing the “rescue fund” would only play out negatively for Euro as it proves the “skeptics” that Euro Zone problems are very real. On the other hand markets are now coming to terms with last week bad U.S Data therefore that is one thorn less and puts U.S Dollar and U.S economy less susceptible to major shocks which unfortunately is not the case for Euro.

Descend for Euro has started, looking at the chart above we can see that Euro is trading well within the downward channel after trading the higher side. The mean of this channel and the low Bollinger band both are around 1.308s therefore as Euro trades lower and breaks below 1.325s the next region where it finds support is not before 1.308s and by that time the momentum of the move would be such that Euro would make multiple new lows. We have already lowered our target for Euro to 1.25s and we are sticking to it for now.

By Bari Baig

http://www.marketprojection.net

© 2010 Copyright Bari Baig - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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