Article originally published on innerfx.com and republished here with permission
Quote of the day:“The difference between the right word and the almost right word is the difference between lightning and a lightning bug.” ~ Mark Twain
Good morning. Dollar strengthened across the board as a reaction to Fed being pessimistic about the U.S. economy. The Fed aims to lower long-term lending rates by swapping $400 billion in short-term bonds for long-term bonds of maturity from 6 to 30 years: action called Operation Twist II as it is similar to a move in the 1960s named after the popular dance craze.
Monday’s opening gap was finally filled yesterday as the market rallied ahead of FOMC but found resistance around 1.3800. As noted in my report yesterday and earlier this week, the potential gap fill level could have been a good entry for bears – and it was. As seen on the chart below, 61.8% retracement value of last leg down was in the same region and the more technical/key levels are clustered together – the stronger that support/resistance level is. There is no magic about reversing around 1.38 after filling the gap: it was just good timing.
Last week’s lower zone is being tested and there is no sign of bottoming yet. In case of a pullback to the upside, 1.3630-1.3660 is where to look for next selling opportunity.
The bullish breakout above 1.3430, which I’ve been waiting for, finally occurred yesterday. Current rally confirms that last test of 1.3275 was corrective and we’re heading North – 1.3650-1.3700 being next target. If price pulls back from here, I think it’s worth buying dips around 1.3450
The potential bear flag formation highlighted in my report yesterday was invalidated when the EUR exited the range, breaking above .8750. Therefore, buying on strength as an alternative plan was the best thing to do. Next resistance is around .8800 where an interim double top is formed – keep an eye on this upside barrier
Small update here: a possible nice setup was canceled as a result to yesterday’s market reaction to Fed’s announcement. 5.600 was the support level to keep an eye on, and since it wasn’t even reached – the selling scenario is on hold for now.
Here’s a nice setup as the NZD is weakening on risk-off trade / dollar strengthening against it, therefor GBPNZD following. Important resistance around 1.9450 has been tested a few times recently and the market is not far below right now. I think it’s worth keeping an eye on the said level, maybe it breaks – thus providing a buying opportunity to consider.