Will The EURUSD Trend Favour The Dollar?

Posted by Rob

May 14, 2008

Euro The Federal Reserve may lower interest-rates after a government report showed US consumer prices grew less than forecast for April.

Dustin Reid of ABN Amro Chicago said “The Fed may have more room to cut rates if deemed necessary. Inflation was a key driver behind the recent dollar rally.” - Bloomberg

The dollar reached $1.5462 today, after a similar price of $1.5474 was reached yesterday.

A survey of Bloomberg users suggests that the USD will strengthen against the euro and yen over the coming months as the Federal Reserve hold off cutting interest-rates any further.

Technical Chart: EURUSD 1-hour

EURUSD 1-hour (14-05-08)

The 1-hour technical chart for the EURUSD shows the dollars growth against the euro has declined slightly after the release of lower than expected US consumer price data.

We can see a downward channel of support and resistance that favours the dollar, however, price action appears to have stalled at the 61.8 percent Fibonacci line.

At present price action is moving above the 20-day sma, and below the 55-day sma. The 30-min, 1-hour and daily chart all show the stochastic to be heading downwards. However, the 4-hour chart doesn’t agree, with the stochastic well below the oversold line.

With this kind of uncertainty made apparent with the technicals across a range of time-frames it would be good to wait for conformation as to the direction before entering any trades. Although if sticking with the ‘trend is your friend’ methodology, looking for sell signals will continue to be favoured with the strong downward channel. This is particularly the case if the price fails to break through the top green resistance line.

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