EUR/USD Mid-Session Analysis for September 7, 2012

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The EUR/USD is soaring at the mid-session after the U.S. Non-Farm Payrolls Report fell short of pre-report estimates, leading to increased speculation the Federal Reserve will soon begin another round of quantitative easing. 

The rally also presents a continuation of Thursday’s strong rally which was triggered by the announcement that the European Central Bank was set to begin a stimulus program that would buy unlimited amounts of Euro Zone government debt. Earlier in the trading session, the Euro was firming on the news that China would also add stimulus to its economy. 

Daily EUR/USD Chart

Daily EUR/USD Chart

The series of higher-tops and higher-bottoms on the daily chart helped spark this week’s two day surge in the EUR/USD. According to this swing chart, the main trend has been up on the daily chart for several weeks. Following the steady up move, the action the past two day suggests the possibility of blow-off rally. 

From March 27 to July 24, the EUR/USD broke from 1.3385 to 1.2042. This range created a key retracement zone at 1.2713 to 1.2872. Today the Forex pair crossed over to the bullish side of the 50% level at 1.2713, but fell short of the Fibonacci retracement level at 1.2872. This price is the next potential upside. Furthermore, the rally should continue as long as the 50% level holds as support.

Another potential upside target is a trend line formed by a pair of former tops at 1.3385 and 1.3283. The trendline is moving down .0004 on the daily chart. Since topping 118 days ago, this trendline is at 1.2904 today. 

The daily chart shows that the trendline will cross the Fibonacci level at 1.2872 next week. Since this area could be a strong resistance cluster, traders should look for profit-taking if tested. Additionally, overbought conditions could also encourage traders to begin paring positions. 

On the downside, key support is the 50% level at 1.2713 and an uptrending Gann angle at 1.2575. Continue to look for more upside action as long as these two levels hold as support.

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About: FX Empire Analyst - James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.

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