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Forex EUR/USD commentary January 4, 2012

To be honest I didn’t quite expect that much optimism for the first solid trading day of the year. However it’s nice to see what you expect to come to fruition. The most interesting piece of news released last night as I was sleeping was the FOMC minutes. Not necessarily the minutes them self. Those were pretty much as expected. However looking a bit deeper into the release one cant help but notice that there are some voting members leaving the table and new ones coming into the vote. I pulled this from one of my favorite news sources this morning (Zero Hedge).

The composition of the FOMC voting members changes drastically as of January 1, with Hawks Fisher, Kocherlakota and Plosser now out of the voting rotation, and replacing them will be the gaggle of ferocious doves Pianalto, Lockhart and Williams. In fact the only hawk left in the Fed as of today through the end of the year is Richmond Fed’s Jeffrey Lacker who has shown substantial dovishness in the past. In other words, from a rotation of 7 and 3, the Fed is now uber-dovish by a 9 to 1 majority.

Soooooo… QE3 is looking to be on the table again and even more likely. This will of course be bullish for stocks and the Euro will benefit as normal for now anyway. There has been a lot of chatter against it but with helicopter Ben at the helm the odds are skewing more in that direction I think.

As we can see on the daily chart the descending trend line has been tested and the close was pretty much spot on the line. What’s also interesting is that looking at the 15 minute chart the two pull backs from the daily highs were both on decreasing volume. The lower volume drop as the US session was closing is to be expected. However the low volume drop after London closed tells me that the US is feeling a bit more optimistic than I expected. This along with the fact we got the close rather close to the high makes me rethink my case for the drop after the test of the trend line. In other words guys she has a good possibility to run further up and test the break out daily lows from October 3rd at 1.3170. If it doesn’t take much work for the market to break through the congestion area created over the holidays then the run to 1.3170 may go quicker that I expect also. Be ready for some short covering guys this could get really interesting this month.

During Asia we have already tested the recent lows. If there is no stop run I would be entering long after the market shows some intent and a faded move. However as you can see I am already long from the US session and have already moved my stop to break even. I wont be doubling up on this position so will just wait and see if I am correct again today.

Take care all and be careful out there.


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