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Today’s Trading Edge: EUR/USD– To Continue Plummet after Double-Bottom Fails

Posted by Edward Moya on May 15, 2014 2:33:00 PM

WWM EURUSD MAY 15 2014

The euro’s losing streak continued earlier this morning after poor GDP figures and weak CPI readings supported expectations that the European Central Bank will unleash a new stimulus program next month.  EUR/USD however found some support and tentatively formed a double-bottom pattern on the daily chart shown above.  Overbought conditions from the stochastics indicator also supported the bounce. 

Price has produced a major selloff since forming a bearish butterfly pattern shown in red.  A needed bounce might be what this major correction in the euro could use before targeting a run toward the 200-day SMA.  If price continues to rebound, sellers may look to enter at the 38.2% Fibonacci retracement of the recent slide which currently resides at 1.3770. 

On the fundamental front, the selloff in equities began after small-cap stocks continue to drop, tensions over Russia and Ukraine escalate and industrial production in the U.S. had a big miss. The following headlines however should not continue to support a weakening U.S. currency rather help it, with the exception of industrial production.  The U.S. dollar should continue to rally on safe-haven flows and purchases of U.S. government bonds.  Only weaker data from the U.S. will slow down the tapering process and possibly provide a major reversal on the strengthening dollar.  Major resistance remains at the 1.40 handle.    

The trade: Sell EURUSD at 1.3770 with a stop loss at 1.3830 and a take profit at 1.3650  The Risk/Reward Ratio is 1:2

Edward J. Moya

Technical Strategist

WorldWideMarkets Online Trading

Price has produced a major selloff since forming a bearish butterfly pattern shown in red.  A needed bounce might be what this major correction in the euro could use before targeting a run toward the 200-day SMA.  If price continues to rebound, sellers may look to enter at the 38.2% Fibonacci retracement of the recent slide which currently resides at 1.3770. 

On the fundamental front, the selloff in equities began after small-cap stocks continue to drop, tensions over Russia and Ukraine escalate and industrial production in the U.S. had a big miss. The following headlines however should not continue to support a weakening U.S. currency rather help it, with the exception of industrial production.  The U.S. dollar should continue to rally on safe-haven flows and purchases of U.S. government bonds.  Only weaker data from the U.S. will slow down the tapering process and possibly provide a major reversal on the strengthening dollar.  Major resistance remains at the 1.40 handle.    

The trade: Sell EURUSD at 1.3770 with a stop loss at 1.3830 and a take profit at 1.3650  The Risk/Reward Ratio is 1:2

Edward J. Moya

Technical Strategist

WorldWideMarkets Online Trading

 

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