Forex Technical Update

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EUR/USD Chart 1H 6/4/2012 7:05 AM EDT


The EUR/USD basically formed a range between 1.2460 and 1.2286 after the poor 6/1 US NFP release, which showed only 69K jobs added in May. This range represents the conflicting dynamics between risk aversion (USD-positive)  and QE prospect rising (USD-negative).

As the market gears up for the 6/4 US trading session the EUR/USD is nearing the highs from right after the NFP-reaction in the 1.2450-1.2460 area. A break above this area can open up the correction rally scenario, especially if the RSI pushes above 70. It should be noted that 1.2455 is also 50% retracement of last week's high to low.

Above 1.2460, the market opens up the 1.2495 (61.8% retracement of last week's high to low). For the US session, this will be a key resistance. If the market can push above 1.25, then our corrective rally scenario first opens up to 1.26-1.2630.

Failure to break these resistance factors means the market has downside to test the 1.2286 and then the 1.22 handle with the 1.19 2010-low and 1.20 psychological support in sight.

EUR/USD Chart 4H 6/4/2012 7:15 AM EDT


An upside breakout target convention using the width of the range would project to 1.2630. The previous consolidation saw resistance at 1.2623. It will be interesting when the market nears the 1.26 area, and when the RSI (the oscillator below chart) in the 4H time-frame tests 60.

A persistent bearish momentum should see the RSI held below 60 and return below 40, as shown on 5/21.

Note that in the 4H chart the 1.25 area will coincide the 55 SMA while the 1.2620 area will be the 100 SMA.

Spanish Bond Auction and Fed Watch

- As the eurozone crisis continue to deepen, a key risk event will be Thursday's Spanish bond auction, through out the week can shake up the markets. With yields nearing the 7% unsustainable level, and Spanish banks revealing more and more problems, an uncovered auction (one that does not raise enough money) will be a major drag on the Euro

- With US jobs data faltering along with manufacturing, the recovery appears to be grinding to a halt. This might force the hand of the Fed to consider some form of monetary stimulus. Bernanke is to testify on Thursday. Some believe Operation Twist will be more likely than Quantitative Easing. If the language gives QE equal possibility or even more likelihood then Operation Twist, we are likely going to see pressure for the USD.

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Fan Yang CMT is a forex trader, analyst, educator and Chief Technical Strategist of FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.