A seminal day for the euro vs dollar yesterday which finally managed to breach the 61.8 fib retrace level of the Nov 4 2010 high to the low of 10 Jan 2011 ending the day as a wide spread up candle as risk on appetite returned to the markets with a vengeance. This surge higher for the eurodollar was also mirrored in equities and the bullish trend now seems set to extend further as the pair begins to move several critical levels, the first of which is the deep price congestion which now sits between USD1.3853 and USD1.4046 immediately ahead. The recent bull trend has received excellent support from both the 9 and 14 day moving averages which have now crossed the 100 day and, as such, add a further layer of positive sentiment to the current picture. In addition to the resistance ahead we also have two further key price levels which need to noted as they both coincide in the USD1.4050 area. The first of these is the upper trend line on the monthly chart which may cap any further medium term rise and, in addition, this level is also the 50% retrace from the all time high at USD1.6038 to last June’s low at USD1.1876. If both these levels are breached then we can expect to see the pair continue their upwards momentum and possibly retest the Nov 4 high of USD1.4282 in due course.
The technical picture is also being a boost by the political rhetoric emanating from Europe with President Sarkozy throwing down the gauntlet last week with his statement from Davos that Germany and France would not allow the Euro to fail, warning speculators not to short the euro further. He clearly has failed to realise that most large speculators are long the euro anyway. Support for the euro is also coming from the ECB with Jean Claude Trichet likely to add further hawkish comments in tomorrow’s press statement which follows the monthly interest rate meeting, so expect to see a further rally as a result.