Fundamentals and Technicals Agree: EUR/USD Headed for 1.3400
Federal Reserve Chairman Ben Bernanke caught traders off-guard this morning with an unexpectedly dour outlook for the U.S. economy . Far from ruling out the potential for additional quantitative easing, Bernanke argued that continued accommodative monetary policy is necessary to keep reducing unemployment. Meanwhile, in stark contrast to Bernanke, ECB President Mario Draghi appeared cautiously upbeat in today’s assessment of the Eurozone economy. Draghi noted “signs of stabilization in the financial markets” and said that he was “optimistic in perspective” though not necessarily in absolute.
These differing opinions are significant because central bankers control the monetary policy and interest rates of countries, which as my colleague Kathy Lien noted earlier, are “the single most important driver of currency fluctuations.” Based on today’s economic assessments, traders are adjusting their interest rate expectations in favor of the EUR/USD.
Meanwhile, the technical picture of the EUR/USD also augurs for higher prices over the course of the week. As the daily chart below shows, the EUR/USD just broke above a significant previous resistance level at 1.3190 (noted in this morning’s Candlestick Daily Report), which may clear the way for further rallies to the 1.3400 round handle or year-to-date highs near 1.3485.
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