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Why Euro 1.40 is a Realistic Target

Last updated 3/19/2009 9:58 AM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

The EUR/USD is on a tear, having rallied more than 600 pips or 5 percent over the past 24 hours.  The significance of Fed's actions continue to resonate over the currency markets and even though we have already seen parabolic moves in the pair, I think it will head higher.  

Why?

On December 16th, when the Fed first brought up the prospect of buying U.S. Treasuries at their FOMC meeting, the EUR/USD rose from a low of 1.3629 to a high of 1.4719, an 8 percent move.  Now that the Fed is actually following through with buying longer term Treasuries, the impact on the EUR/USD should be the same if not greater.  

We have seen a similar reaction in the British pound.  After officially announcing Quantitative Easing, the GBP/USD fell 650 pips, a move of only 4.5 percent.  However the price action of the GBP/USD has been diluted by the weakness of the greenback and so a more accurate reflection of the market's appetite for British pounds post Quantitative Easing can be found in EUR/GBP which has rallied 8 percent since the March 5th Bank of England meeting.  

Source: DealBook

Therefore an 8 percent move in the EUR/USD post FOMC would take the currency pair to at least 1.40 from Wednesday's low.

Source: DealBook 

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.