It doesn't matter if I understood German or not as the constitutional court read out the verdict yesterday. Right infront my trading screen, I saw the price changed so rapidly, I just needed to confirm the big figure was right. The way the prices gapped reminded me so much of those good old days when central banks intervened in the market. I stucked to my guidance in 'The grind...' (12 Sep Wed), sold the E$ at 1.2873 earlier, waited and the verdict came, E$ plummeted and bought back at 1.2819, 54 pips in a matter of seconds. Sweet! Stayed out for the rest of the day, even though I foresaw higher E$, as the technical signals were thrown out of rhythm as a result of the irregular price action.
These couple of weeks, market has primed itself for QE3 and its apparent that it has been factored into the current price.
So 3 possible scenarios for tonight:
1. Fed pushes for QE3 and the amount is within market expectation > E$ rallies on knee-jerk reaction, then sell off on 'Buy rumour, sell facts'.
2. No action from Fed and continues to stay vigilant > sharp sell-off in E$ right away.
3. Fed pushes for QE3 and amount exceeds expectations > E$ extends its rally through 1.3000 and correction is delayed.
On the order book based on yesterday information: Stop loss orders were found at 1.2950 (large) and 1.2750. Noteworthy limit orders at 1.2950 & 1.3000.
Technically, indicators are back into o/b levels with the daily one at extreme. This has further increased the probability of a snapback as price action is going exponential. Bearish divergence has emerged and that adds on to the bear camp. However, another study of momentum is still pointing firmly higher, which I can conclude that the market is potentially susceptible to a near term correction within a bull trend. This makes sense as the anticipation of US' QE3 will be over after tonight and focus could be thrown back to the eurozone. However, do note that market is capable of extending its 5th wave (of bigger 3rd), normally driven by overwhelming fundamentals. In a situation like today, its wise to step back and react, rather than to pre-empt the market. I am mentally prepared for E$ to fall back to 1.2710/30 in case of disappointment, a level I will be keen to buy into.
On a regular trading session, I would bet on a 1.2830/40 - 1.2990/300 range but because its FOMC Thursday, the expanded range would be 1.2710/30 - 1.3040/50.
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| E$ Weekly chart - Trendline to trendline |
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