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Forex pairs in this Article » EUR/USD
By: DailyForex.com

The EUR/USD pair had a violent session on Friday, smashing through the 1.38 handle without any issue whatsoever. However, in reality I believe that this market is moving based upon the lack of liquidity, and therefore that move isn’t much to pay attention to. I think it’s simply a matter of not enough traders out there to keep the markets in check. The fact that the 1.38 level push the market back down, even after a large break out to the upside suggests to me that we are going to have a lot of noise above that level, and that breaking above it is in fact going to be a bit difficult.

The shape of the candle of course is ominous, but I still think that what the illiquid conditions proved is that we are going to try to break out to the upside even if it is difficult. I think that the markets are essentially ignoring the problems in Europe and the potential deflation at the moment, and Sibley focusing on whether or not the Federal Reserve is going to keep interest rates low for a longer period of time. They have in fact suggested that is going to be what happens, so in this particular case I think the US dollar is going to struggle for a little while.

A tale of two central banks

The Federal Reserve is already stated that it was ready to taper off of quantitative easing, but it is also willing to keep those interest rates lower for longer than originally thought. Because of that, low rate should continue to keep the value of the US dollar lower than the Euro, even if most people believe now that deflation is going to hit the European Union. If that’s the case, it’s only a matter of time before the ECB starts to loosen its monetary policy even further, and at that point in time I believe this pair will turn around and start falling. In the meantime, the marketing to be focusing on the Federal Reserve, so I still think that upward is the way that this market goes.

EURUSD Daily 123013

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