The euro had a roller coaster ride this morning after poor European manufacturing and services data drove the currency lower, but pared losses after a report showed low inflation persists in the US. EUR/USD fell early in London from the session high of 1.2574 to 1.2503 after the pace of economic growth plunged to a 16-month low in November. Markit Flash Eurozone PMI, headline index of both service and manufacturing economies plunged to 51.4 from October’s 52.1 reading. The European Central Bank (ECB) may be more anxious to provide additional stimulus.
Key support early in New York is currently respecting the critical1.2500 handle. The euro recovered its earlier losses after core inflation in the US rose 0.2%, stronger than the 0.1% climb in September, higher than the Bloomberg forecast of a 0.1% drop. Overall, CPI climbed to 1.4% in twelve months, but it remains comfortably below the Fed’s goal of 2.0%, a level that has not been reached since April 2012. The dollar is also getting a boost from the hightest level of Consumer Sentiment since January 2008.
In my last euro post, my closing comments emphasized that the market was heavily short euro and that a move towards 1.2500 might squeeze out some late shorts to the game. Price action on the 240-minute EUR/USD chart is displaying that the higher low and higher highs rebound from the 1.2357 low is continuing. We could eventually see price target the 50-day SMA at 1.2660. It is around that area that a bearish butterfly pattern could be forming. If 1.2680 is taken out, further upside may target the 1.2750 zone. Downward pressure may eventually return, but that may not happen until we get closer to the next ECB press conference.
This targeted rally is only valid if we see a fresh weekly high before the end of week.
The trade: Buy EURUSD at 1.2605 with a stop loss at 1.2575 and a take profit at 1.2660. The Risk/Reward Ratio is 1:2
Edward J. Moya
WorldWideMarkets Online Trading