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The EUR/USD pair rose above the 1.30 level during this week as the Federal Reserve increased its quantitative easing program. The addition of $40 billion worth of MBS purchases every month suggested that the Federal Reserve was throwing the "kitchen sink" at the markets in order to boost asset prices.
With the quantitative easing measure seemingly unlimited, as stated by the Federal Reserve Chairman, markets took off on Thursday and Friday. The Chairman also stated that he was willing to continue to have an easy monetary policy until well after the recovery started. In other words, they will stay loose as long as it takes.
With the clearing of the 1.30 hurdle, we are now in the midst of the noise from the descending triangle that sent markets lower earlier this year. While this chart does look rather bullish, it is by all stretch of imagination overextended at this point in time. Because of this, we are very hesitant to go long at this point.
This market does look bullish, and as such we do want to be long of it, but we need to see some type of pullback first. Quite simply, you cannot keep this kind of momentum going forever. Is because of this that we think buying at this point in time is risky and quite reckless.
Looking forward, we think that a pullback will simply attract more buyers as the Federal Reserve seems quite content with punishing the US dollar. However, this will start to become more of a fight like we see in the US dollar versus Japanese yen pair, as both central banks are trying to ease and deflate their currencies.
With this being said we may have a consolidated market with wild swings. In other words, it will simply come down to which continent the market is focusing on going forward: North America, or Europe. We think the next couple handles will be positive for the Euro though, and as such any pullbacks should be invitation to go long. As for selling, we would need to see some type of significantly bearish candle form in the general vicinity that we are at in order to consider it.