Last week’s downside target of 1.3650 was easily reached after the potential double-bottom pattern was invalidated. Today’s weakness in the euro received some fresh selling news after German unemployment surprisingly climbed up 24,000, the first increase in six months. The forecast was for a decline of 15,000.
With German confidence starting to wane, expectations for Germany to carry the euro-zone out of this slow economic recovery period will be delayed and most likely trigger the support of any accommodative action from the central bank.
Price appears poised to have a daily close below the 200-day SMA and further downside could target the February lows, which are around the 1.3475 area. The current 4-week losing streak for the euro may eventually lead to a key test of the bullish trend line that has been in place since ECB President Mario Draghi’s famous speech at an investor conference where he pledged to do “whatever it takes” to save the euro-zone from economic collapse. The low made on July 23, 2012 was 1.2041.
The bearish butterfly pattern shown in red is still very much valid and the selloff may continue.
Key resistance will come from yesterday’s high of 1.3667. If downside pressure takes out the key bullish trend line, price may target the key 1.3250 pivot.
The trade: Sell EURUSD at 1.3620 with a stop loss at 1.3670 and a take profit at 1.3475. The Risk/Reward Ratio is 1:3
Edward J. Moya
WorldWideMarkets Online Trading