EURUSD (week: 7-11 Nov. 2005)

Last week, EURUSD dropped sharply following an unanimous decision by the FOMC on Tuesday to raise interest rates to 4.0% and clear signals that this tightening policy is not likely to alter its course in the near future. Several rumours about a possible ECB rate hike kept the USD confined in the 1.19-1.20 area during the week. On Friday, a rather dissapointing NFP report pushed the EUR higher towards 1.1990, where the pair reversed and initiated a fast and steady rally that broke several support levels and reached as low as 1.18.

This week, we expect at first some technical retracement of this recent rally, however gains above the 1.19 figure are in our view highly improbable. The USD is currently in full momentum on daily and hourly studies, it has broken key resistance levels against the EUR and JPY, therefore any long positions should probably be carefully monitorized for a change in direction. There is also the possibility that further USD buying push the greenback higher right in the first trading hours of the week, therefore we advise investors to carefully watch the opening Japanese session for some clearer hints as to where we are heading in the first part of the week. Now the key figure of 1.17 (38% retr. of 85.60-1.3660 move) is in plain sight, it is definitely the next important target for the pair, but at the same time this situation should probably trigger some signals of a possible mid-term shift in direction for the pair. We may be standing on the borderline of 2 major trends, therefore we should not be surprised if massive profit taking from part of important market actors (and the opening of new mid- and long-term positions) set up higher volatility and fuel large moves during the next few weeks. These trading conditions may offer interesting profit opportunities but also a higher risk of being caught up on the wrong foot...
Good luck!


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