"Market is what happens in between risk events, I read somewhere a long time ago," said Valeria Bednarik, FXstreet.com Chief analyst. And in the meantime, "the EUR/USD found enough buying interest to breach above 1.2560 area right before Bernanke hit the wires," points Bednarik. The pair extended its rally to the congestion zone located at 1.2630, January monthly low and strong resistance level for the past couple of months, and traded in between those two levels for the rest of the day.
Next risk even is no doubts, ECB next week; again market hopes are overly high on some action coming. The most, point for a detailed plan on how the Central Bank will resume bond buying in an attempt to limit yields differentials among EU members. But I can’t forget past ECB meeting with the EUR/USD jumping 100 pips higher on hopes, and nose diving 200 as Mario Draghi offered empty hands.
Next week market will see RBA, BoC, Riksbank, and BoE meeting, UBS expects "them to keep key rates on hold," according to a UBS analyst Chris Walker's report. In line with Valeria Bednarik, UBS things market focus will focus on ECB Thursday meeting, "where the ECB is expected to cut key rates but Draghi's comments will take centre stage."
"The Bank of England is likely to sit tight, while it waits to quantify the effect of the last two measures implemented this summer on the economy," comments BNP Paribas. IN the case of the ECB, BNP Paribas believes that the bank is "likely to ratify a 25 basis point cut in the refi rate to 0.50% next Thursday" on line with the hints of the "quarterly growth and inflation
Will the ECB dare to act before the German constitutional court rules out on ESM next September 12th? "Seems quite unlikely although is possible no doubts," answers Bednarik. "However, another ECB meeting with no actual plan could strongly harm the EUR."
Will the EUR/USD rise on hopes?
After closing the week above a symmetrical triangle, "the upward bias is still favored, with the pair needing to break above the 1.2630 area to confirm the continuation towards 1.2680 first and 1.2745 later on the way," states Bednarik. This latest, is past June monthly high, and steady gains above the level "may point for a test of the 1.30 price zone."
Camilla Sutton, Chief Currency Strategist at Scotiabank, agrees with Bednarik about the EUR/USD bullish profile in the near-term, “but risk/reward is skewed,” she says. “100-day MA providing resistance at 1.2584, a break above would open up a temporary test to the June high of 1.2743; support at 1.2366, 50-day.”
If we take the inside-market info related to COT, a TD Securities CFTC report says that "speculators further paring the net short EUR position," in the past week. "The net short exposure now stands at 101.6k contracts, after being trimmed to 123.9k last week," continues the TD analysts. "While still by far the largest net position among the majors, the EUR short is now sitting at early April levels."
"The bulls will be safe as long as price holds above the 1.2440 area, now key support for this newly born ascendant trend," states Bednarik. Failure to overcome 1.2630 and increasing pressure towards the level "may discourage buying interest," while once below 1.2440, the slide may continue towards 1.2280 price zone.
The Gold's impassive path
And while market players are showing different interpretations of Bernanke’s words, gold is telling QE3 is a fact: "the metal advanced for second week in a row, falling to $1646 right after the FED’s President speech, only to bounce strongly up, adding by the end of the day around $50," continues Bednarik, " The metal closes the week around $1692, levels not seen since late March this year."
Rising QE3 expectations and promises of ECB stabilizing action "convinced specs to move aggressively into gold longs and to cover short exposure," commented TD Securities. And the financial institution said regarding Commodity currencies that they "were not all treated the same by speculators, as the relatively extreme AUD and NZD net longs were cut modestly, while CAD long positioning decently rose."
"Net AUD longs were trimmed to 78.1k (from 86.9k); NZD longs were pared to 14.2k (from 16.4k); while CAD longs increased to 60.9k (from 50.9k)," concluded TD Securities.
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