Today, the disinflationary trend in Europe will be addressed by ECB President Mario Draghi. Declining prices, a slow economy and poor borrowing may lead to a wait and see approach regarding another round of stimulus.
Earlier this morning, the euro did not have much of a reaction to a solid release on German Industrial Production this morning. Output in November climbed 1.9%, better than the forecast of 1.5% and a significant improvement to the prior reading of -1.2%. This reading may help elevate forecasts for German growth for the last quarter of 2013.
Volatility should pick up over the next couple hours and we may see a full percentage point move or greater this morning with the euro crosses. The ECB press conference may provide some knee-jerk reactions, but at the end of the day, we may see Draghi maintain a slightly less dovish stance. The recent improvement in data may allow him to become a little more upbeat and if that is stance in the Q/A part of the day, the euro may skyrocket above recent highs across the board.
Price action on the 60-minute chart shown above highlights the potential formation of a bearish ABCD Gartley pattern at 143.75. On the monthly, weekly, and daily charts, price is trading above the 200-, 100-, and 50-day Simple Moving Averages. A possible momentum setup will look to enter a long position at the 108.9% Fibonacci expansion level of yesterday’s high to low move. If in the middle of his conference he becomes slightly more dovish and price respects the 144.00 level, a major reversal may occur.
After the dust settles over the next couple of trading days, traders may eventually a resumption of the longer term bullish trend and the potential Gartley pattern may be invalidated.
The trade: Buy EUR/JPY 143.25 with a stop loss at 143.00 and a take profit at 143.75. The Risk/Reward Ratio is 1:2.
Edward J. Moya
WorldWideMarkets Online Trading