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EUR/USD broke above the uptrend channel that characterized it throughout the week and above critical resistance at 1.3838. This comes after 5 central banks coordinated to supply dollar liquidity to European banks – the Federal Reserve is helping the ECB.

The ECB and the Federal Reserve address the dollar funding crisis that has weighed heavily on European banks. This came after European officials dismissed comments made by the head of the IMF Christine Lagarde regarding an urgent need to recapitalize European banks.

Euro/dollar is surging forward, now just under 1.39. It broke the uptrend channel that stood on around 1.3820 during the breakout and above critical resistance at 1.3838 – a line which was the bottom border of a long term range. The euro can look down to it once again.

EUR USD Breaks Higher on ECB Dollar Liquidity - Click to enlarge

Further resistance is at 1.3950, followed by 1.4030. Support below 1.3838 is at 1.3788.

For more on EUR/USD, see the euro/dollar forecast.

This shocker move came just after a big bulk of US data pointed to higher inflation, lowering the chance of QE3. This weakened the euro and kept it below the channel, but these breaking news sent it high.

The liquidity operation announced by the ECB will continue until year’s end and will provide relief to the European banks. 2 such banks were struggling in the past week, and needed the ECB. The ECB in turn, now leans on the Federal Reserve for dollars.

Jamie Coleman analyzes this move and states:

The knee-jerk reaction has been to buy EUR/USD as the funding crisis for European banks has been plastered over but the root causes remain. Not very bullish in the long-term.

Will this impressing rally continue? Or will it fade if the root cause to this situation won’t be solved?

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