EUR/USD has further tightened the narrowing consolidation that has been in place after the initial knee jerk reaction to the December 18th Fed tapering decision. End of the year portfolio flows and investing in Europe has so far prevented the strong corrective move in the euro. With the holidays upon us, trade flows are expected to be choppy and stop runs could trigger a move higher with the high-beta currencies before we finally see the follow through with strong demand for U.S. dollars.
Price action on the 60-minute chart displays a significant decrease in volatility with price slowly stabilizing and attempting to recapture the 1.3700 handle. Most recently, euro dollar has tentatively respected the key support line that started on November 7th. With price still showing some signs of bullish life, we will look to fade one last rally before targeting a major corrective move. With end of year flows a tight stop loss is required, because we still may see the banks drive a short squeeze as liquidity lightens up.
A bearish Gartley pattern is potentially forming around the 1.3740 level. Initial downside targets include the 50-day SMA at 1.3612, with our downward objective at 1.3280.
The trade: Sell EUR/USD at 1.3740, with a stop loss at 1.3780 and a take profit at 1.3620. The Risk/Reward Ratio is 1:3.
Edward J. Moya
WorldWideMarkets Online Trading