The European Central Bank (ECB) was unanimous in seeing the need for more stimulus and ECB President Mario Draghi announced that the Bank is prepared to act. No announcements were made of new measures, but the expectation for additional stimulus drove the euro to a fresh 2-year low to the dollar.
Price action on the 240-minute EUR/USD chart displays the 130 pip drop that occurred during the ECB press conference. Bearish momentum is firmly in place as price snapped a six day rally and is trading comfortably below the 200-, 100-, and 50-day Simple Moving Averages. The key bounce that occurred off the 1.2500 handle in early October provides us with our initial downside target using the 161.8% Fibonacci expansion level at 1.2256. Major support will come from the psychological 1.20 level.
With the market heavily short the euro, a move towards 1.2500 might squeeze out some late shorts to the game.
The trade: Sell EURUSD at 1.2490 with a stop loss at 1.2540 and a take profit at 1.2290. The Risk/Reward Ratio is 1:4
Edward J. Moya
WorldWideMarkets Online Trading