ForexPros Daily Analysis March 29, 2011

The EUR/USD did manage a brief rally above the 1.4100 major psychological level but could not maintain the buying support to hold above it. The Directional Bias remains bullish on the daily therefore the recent pullback towards the 20 period SMA waiting at 1.4015 is still a valid (aggressive) swing level that may be bought into.

Today's euro price action was motivated by a singly word: "durably", as was the description of inflation above the ECB target. This increased trader expectation of a 25 basis point rate hike for the April 7 meeting and now has (once-again) been discounted into the euro. There is still once more chance for a correction lower and that's the EU bank Thursday stress test; there are persistant concerns of bank reserves in Ireland. Additionally, European banks are being forced to sell more long-term bonds in order to meet the liquidity rules for funding under Basel III rules. In what must seem like a collossul irony, insurers, who are the biggest purchaseres of such debt are in effect being punished by the rules of the EU's Solvency II which are making it more costly to hold this debt.

Another factor playing into a slightly deeper EUR/USD pullback comes from the U.S. and the growing hawkish voice from two admittedly-hawkish Fed officials. This tone could allow for a short bounce in the U.S. Dollar Index and set up the slightly deeper correction lower in the EUR/USD I am waiting for in order to trigger the swing buy on the daily chart between the 20 period SMA and 34 period EMA high which puts the entry zone at 1.4015 to 1.3957.


Forex Trading analysis written by Raghee Horner for Forexpros.


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