Is the EUR/USD Ready to Run Higher?
I've been cautiously bullish on the U.S. dollar for the last couple of months, using dips as buying opportunities. Put another way, I've been trading the ranges across majors.
But last night, I took a step back and looked at the EUR/USD and noticed that it's held up incredibly well over the last four months. It hasn't really given much back from its big push higher from 1.4400 to 1.6000 earlier this year. In fact, the EUR/USD has retraced a mere 38% -- a key Fibonacci retracement level.
EUR/USD Daily Fibonacci Retracement and Point and Figure Chart
You can see in the chart above that the EUR/USD has followed its Fibonacci retracement bracket pretty closely, finding support at the 38% level near 1.5400.
From a point and figure perspective, the EUR/USD is still on a buy signal.
My observation last night got me thinking that the EUR/USD might be setting up for a big breakout, above 1.6000, if the U.S. goes into a panic mode. That's why I'm watching the situations in Fannie Mae (FNM) and Freddie Mac (FRE) very closely, all while keeping an eye on the Volatility Index ($VIX).
Check out Bloomberg's coverage of the Fannie and Freddie stories as they relate to the forex market:
Dollar Falls Versus Euro on Concerns Financial Losses to Deepen
Eric
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