September Euro Still Soaring on Fed Action

The U.S. Dollar is trading weaker versus the Euro overnight, as investors continue to respond to the move by the Federal Reserve to bolster the U.S. economy. Also underpinning the single-currency is optimism over a meeting between Europe’s finance ministers.

The plan by the Federal Reserve to buy $40 billion per month in mortgage-backed securities sent the September Euro futures contract soaring on Thursday even though the market had been anticipating the additional stimulus. The open-ended proposal came as a surprise because in the past the Fed had set a firm amount of stimulus as well as fixed ending date. Yesterday’s proposal suggests that the Fed is “all in” as it seems committed to do everything possible to revive the jobs and housing markets.

The Fed also said it intends to keep the U.S. benchmark short-term interest rate at a historically low level until mid-2015 and continue to buy long-dated securities and sell short-dated securities.

James A. Hyerczyk Forex, Futures, & Equities Analyst

Weekly Nearby Euro Pattern, Price & Time Analysis

The weekly closing price reversal bottom in the Nearby Euro was the spark that ignited this current rally. This chart pattern typically leads to a retracement of the last major range. This range is identified as 1.3526 to 1.2062. The retracement zone is 1.2794 to 1.2967. This week’s surge to the upside not only took out this retracement zone, but also a key downtrending Gann angle at 1.2946.

Based the September 2011 top at 1.4602 on the weekly chart to the July 2012 bottom at 1.2062, a new major retracement zone has formed at 1.3176 to 1.3439. This zone is the next upside target along with a downtrending Gann angle at 1.3236.

Although I don’t expect a change in trend, it is possible that a weekly closing price reversal top could form next week. This type of vertical trading action typically ends with this kind of formation. Uptrending Gann angle support is at 1.2622, followed by 1.2702 the week-ending September 21. There are two significant combinations to watch next week for possible resistance zones:  1.3176 to 1.3226 and 1.3439 to 1.3502.