Early in Europe, ECB President Mario Draghi spoke about a high euro and possible asset purchases and the euro responded by dragging lower to the rather tedious range we have seen for the past couple of weeks. Mr. Draghi explained that if the euro remains bid, the bank might be forced to change their policy stance. Another key point was that if inflation worsens, the Bank may have to resort to asset purchases.
The euro sold off today and the reasons are both technical and fundamental. With price being so close to the upper boundaries of the 1.30 to 1.40 range, sellers are starting to scale into medium term bets. The trade flows and volumes however still appear to be light and that does not provide unwavering confidence yet that this breakout is the right one to trade.
Price action on the EURUSD daily chart displays that price is still bullishly trending above the correct order of moving averages, which has the 50-day SMA on top, the 100-day SMA in the middle and the 200-day SMA at the bottom. Since failing to break out above the psychological 1.40 handle on March 13th, price has steadily consolidated into a triangle pattern. The longer-term trendlines support the bullish stance, but if price is able to take control below 1.3800, the sellers may have their way.
The trade: Sell EURUSD at 1.3775 with a stop loss at 1.3825 and a take profit at 1.3675 The Risk/Reward Ratio is 1:2
Edward J. Moya
WorldWideMarkets Online Trading