The big FX news this weekend was the news that the Chinese have decided to allow the yuan to float against the greenback - a big announcement considering that they pegged it to the dollar in 2008 at the height of the global financial crisis. How this will effect the EUR/USD exchange rate is not exactly clear and analysts are mixed. On the surface it would appear to be EURUSD bullish because as more dollars get sold when the Yuan appreciates the USD will weaken across the board (analysts predict a 4-7% increase in the yuan/dollar exchange rate by the end of the year but, again, they have only had 1 day to digest the news).

We'll see how this plays out in the coming days as the market takes some time to realize the full effects on the global markets. In the short term I'm looking for the bullish retracement to continue to 1.2680 (the 23.6% retracement of the Dec 2009-current drop).

Daily Outlook: We had a bullish breakout of 1.2415 over the weekend and I took a long on the pullback to 1.2400 late Sunday. Technically the pair is still rising on strong bullish support (thick blue line on chart). I expect the bullish run to continue tomorrow though the retracement has such a steep bullish slope at the moment that selling on rallies is not a bad option either.

Trichet is speaking tomorrow at 17:30 GMT - I'd stay out of the market if you're a short-term trader. European leaders have not helped themselves so far (*cough* France *cough*) when speaking and a wrong word by Trichet could produce big movements.

Trading Idea: I currently have a long from 1.2400 with targets up to 1.2490, but the primary trade will be a long at 1.2400 with confirmation with targets at 1.2425, 1.2450, 1.2475 and 1.2500 for 100 pips. My secondary trade will be a long on a breakout of pooled resistance (not present on charts yet - you'll have to watch out for this one).

My current stop is already at break-even but if I re-enter around 2400 support I will look to hide a SL behind 1.2340 support as I am bearish beneath this level.

Finally a more aggressive trade would be a short in the vicinity of 1.2550 with targets back down to 1.2400.


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Source: Forex Signals - EUR/USD Choppy Markets After Yuan Unpegged Forex signals from: