EUR/USD sold off after the 3:00 am French Flash Manufacturing data release disappointed. Business activity declined for a sixth consecutive month as manufacturing PMI printed at 47.3, much lower than the prior 48.8 reading and 1.3 points below the forecast. The currency reaction to the release made a session low of 1.2613.
Thirty minutes later, the euro rallied around 50 pips to 1.2665 on the impressive reading from Germany. With the best reading in 3 months, German Flash Manufacturing avoided an expected contraction and came out with a robust 51.8 level. The service sector had the slowest pace of expansion since June, but the overall the German data was positively received as the euro and European stock market indices rallied.
My euro post from last week identified the bearish butterfly pattern that did target weakness towards the initial 1.2660 target. With price potentially finding major support around the 1.2600 region, we may look to fade bullish bounces over the next couple of weeks. Major resistance will come from the 50-day SMA at 1.2903, but if we see a close above that price, 1.2960 may be where we look to enter a swing short position.
The trade: Sell EURUSD at 1.2750 with a stop loss at 1.2800 and a take profit at 1.2650. The Risk/Reward Ratio is 1:2
Edward J. Moya
WorldWideMarkets Online Trading