Early in London, EUR/USD rallied after two rounds of better Markit Economics data for the common currency. French Markit Manufacturing flash PMI improved to 48.8 from 47.0 and German Markit flash Manufacturing PMI jumped to 56.3, an improvement from the prior reading of 54.3. The overall take on the German data was mixed as services dragged while manufacturing rebounds.
The positive prints helped take the euro above the 1.3600 handle and made a high of 1.3640. Price is currently fighting both the downward sloping trendline from the December 30th high and the 50-day Simple Moving Average (SMA). With limited movements from the highest reading of Eurozone PMI since June 2011 and a rising current account, the focus will fall on the U.S. Jobless Claims and Existing Home Sales releases. This will be the highlight of the week for U.S. data and the impact might be restricted. Solid beats should support the arguments for continued tapering by the Federal Reserve and possibly help the dollar rally.
Price action on the 60-minute chart is displaying a potential bearish butterfly pattern forming around the 1.3650 level. Supporting this bearishness are both the 38.2% Fibonacci retracement from the two-year high to this month’s low move and the point of control of where price has traded heavily this year.
If the key downside target of 1.3500 is breached, major downside momentum may target the 200-Day SMA at 1.3350. A recapturing of the 1.3700 level could open the door for further upside toward 1.3800.
The trade: Sell EUR/USD at 1.3650, with a stop loss at 1.3725 and a take profit at 1.3500. The Risk/Reward Ratio is 1: 2
Edward J. Moya
WorldWideMarkets Online Trading