EURUSD is in danger of a massive fall. ECB’s start of the QE program has already made EURO very weak. Now couple this with the imminent danger of a rate hike by the FED. If the rate hike takes place in the next few weeks as is being anticipated the market analysts there will be massive selling of EURO once again as investors try to take advantage of the higher interest rates being offered on USD deposits. This is the perfect case of a one currency (EURO) getting very weak and the other currency (USD) getting very strong. This would mean a massive fall for EURUSD. If FED increases the interest rates, EURUSD will fall below the parity level as being predicted the the market analysts.
All eyes are on one word: “patient.” If the U.S. central bank does what many investors now expect, and ceases to say that it will be patient in normalizing policy, the Fed could then raise rates as early as June. A rise in short-term rates is good for the dollar and bad for the euro, as it makes holding dollars a more attractive proposition.
As a currency trader, we love to trade EURUSD. For the last one year, EURUSD has been a perfect sell. It has fallen around 2,500 pips. EURUSD can bounce up a little and make a recovery but the downward trend is so strong that the bounce is always followed by a massive fall. When you trade currencies, matching a weak currency with a strong currency is the best trend trading strategy. ECB is already flooding the market with cheap EUROs with it’s Quantitative Easing Program.This means EURUSD going down.
What this means is that there will be a recovery. This is being supported by the technicals. Stochastics is oversold on Daily Chart. So expect a rebound for the moment. Now FED is coming under increasing pressure to increase the interest rates as US economy is showing strong economic recovery. Up till now interest rates had been almost zero in US as the FED has been following it’s own QE program. Last year in October, FED announced the close of it’s QE program. With that close, market analysts have been speculating that FED will increase the interest rates in Mid 2015. When this happens there will be another massive selling of EURO as investors try to buy USD. So the best policy right now is to trade the rebound and when the rebound is over, enter into a short once again.
EURUSD has rebounded around 200 pips this weak from a 12 year low of 1.04618 and went upto 1.06503. All eyes are now set on the FOMC Meeting that is taking and the FOMC Meeting Minutes that will be released today. This FOMC meeting is considered very important by the analysts as it is going to give the clue to the market what the FED wants to do with the interest rate hike.