The euro rebound that started in the London open was primarily technically driven as key support from the 100-Day Simple Moving Average (SMA) was once again respected. Despite poor data from Greece, restructuring issues ahead and low inflation keeping the door open for further action by the ECB, the euro refused to break early this morning. The Greek unemployment rate for November surged to 28.0% verse the prior reading of 27.7%. Athens is financed until the second half of 2014 and Greece will have a critical moment regarding their budget this summer. ECB’s Benoit Coeure explained that the “troika” is not yet discussing the restructuring of Greece’s debt. He also commented that the Eurozone recovery is fragile. The big headline in Europe was the inflation report that was revised lower, but more importantly gives the ECB room to act if the economic recovery takes a turn for the worse.
Today’s rally on the EUR/USD daily chart is tentatively breaking out above a key downtrend resistance line extending back to the upper boundary of the bearish channel that began with last year’s high. While it appears the euro is displaying unrelenting strength for the month of February, euro sellers need to be patient with timing their short entries. If we see one last thrust towards the 1.3800 handle, a bearish butterfly pattern may form and trigger an immediate reversal. Near-term downside support will come from the 1.3600 level and then potentially the 1.3250 area. If the breakout continues the pair could target a retest of the 1.40 handle.
The trade: Sell EUR/USD at 1.3810, with a stop loss at 1.3910 and a take profit at 1.3610. The Risk/Reward Ratio is 1: 2
Edward J. Moya
WorldWideMarkets Online Trading