Acceptable trading ranges often times provide a backdrop for some investors on when to time a key reversal. For the euro, German Chancellor Angela Merkel identified in February that the normal trading range is between 1.3000 and 1.4000. Price is currently forming a potential double-top after sellers strongly defended the 1.3800 region. The first top was formed late October and triggered a move down to the 1.3300 handle which was also the 100-day Simple Moving Average (SMA). That followed a substantial rally towards 1.3810 and has reversed with the key catalyst coming from the U.S. dollar’s rally from the Fed’s actions yesterday. If yesterday’s reversal did not occur, Miss Merkel’s range may have been in jeopardy, as bullish momentum would have targeted the psychological 1.40 level.
Having respected the key 1.3800 region once again, the pair has confirmed a downward continuation of this recent reversal with no immediate signs of slowing down. If the pair is able to break below the 38.2% Fibonacci retracement of the last key rally and the 50-day SMA, bearish momentum may target the 61.8% Fibonacci retracement level, which currently resides with the 100-day SMA at 1.3490.
The trade: Sell EURUSD at 1.3670 with a stop loss at 1.3720 and a take profit at 1.3520. The Risk/Reward Ratio is 1:3
Edward J. Moya
WorldWideMarkets Online Trading