Published On: Sun, Mar 12th, 2017

Significant recovery potential ahead for EURUSD

InstaForex

Background

A rate hike by the Federal Open Market Committee on Wednesday looks like a done deal; indeed, the committee has possibly already had an unscheduled meeting by video conference so it could sing from the same song sheet in the lead up to the official meeting. So the fed funds rate will increase from its recent level of 0.66% to around 0.90%, roughly in the middle of what will be the new target range of 0.75%-1.00%. 

This move in now fully priced in by the money markets but, despite some ill-informed commentary, that’s not the same as saying the probability of a rate hike is “100%” – obviously anything could happen between now and then, including some of the committee members getting cold feet.

Nevertheless, given the consensus, for the US dollar to rally further the FOMC’s “dot plot” for future rate levels would have to be raised above the current end point of 3% (unlikely).

Management and risk description

EURUSD rallied as anticipated on Friday and has now completed its one-month Inverse Head and Shoulders reversal pattern; for an upside objective of 1.0790. Support at 1.0655/1.0620 should now hold.

Furthermore, there is still the developing four-month Inverse Head and Shoulders formation (see daily chart below) and once this is successfully completed (upon a sustained rally above Neckline resistance) a projection toward the 1.1300 level will be “in play”.

Parameters

Entry: today, EURUSD is seen as a buy around the 1.0655 level.

Stop: just under 1.0615, initially.

Target: 1.0757.

Time horizon: allow several days.

EURUSD daily (click to expand)

 Source: ThomsonReuters

EURUSD weekly (click to expand)

Source: ThomsonReuters. Create your own charts with SaxoTrader; click here to learn more 

– Edited by Gayle Bryant

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