Some investment banks expected ECB President Mario Draghi to provide a sign that the central bank was getting closer to acting. Whether it will be quantitative easing, a negative deposit rate or a rate cut, the markets clearly went bid early in his press conference after he confirmed that they are not in a hurry to act. The forex market went heavily bid on the euro and helped take price above this week’s trading range of 1.3476-1.3550.
Midway through Draghi’s ECB press conference the euro rallied over a 100 pips towards the 100-Day Simple Moving Average at 1.3602. With the focus squarely on the tomorrow’s US non-farm payroll, critical resistance remains at the 1.3650 level which coincides with the upper boundary of the downward channel highlighted in red.
The current bullish turn was foreshadowed by the bullish regular divergence on the Stochastic Oscillator. If this substantial rally surges through the downward channel, the potential for further bullishness could target the 1.3725 area. If we see a daily close below the 100-Day SMA, that would be a significant bearish indication that the downward channel is still valid. Strong support may come from the 1.3400 handle.
The trade: Buy EUR/USD at 1.3675, with a stop loss at 1.3650 and a take profit at 1.3725. The Risk/Reward Ratio is 1: 2
Edward J. Moya
WorldWideMarkets Online Trading