EUR/USD hit my downward target of 1.2050 after comments from ECB President Mario Draghi highlighted the increased likelihood of seeing a large-scale quantitative easing program out of Europe. The exchange rate fell to a new 4 ½ year low to 1.2209. Another key bearish driver was the IMF COFER that announced that euro global reserves had a record plunge of 1.5% to 22.6%. With no stabilization flows coming in, we could see a violent drop in the next couple weeks.
With euro-area manufacturing remaining weak, expectations continue to escalate for the ECB to launch QE at the next meeting. The Purchasing Managers index for the area came in at 50.6 for the month of the December, slightly less than the forecast of 50.8, but better than the record 17-month low of 50.1 from the prior reading.
The EUR/USD daily chart displays the key extension of the downward move that is currently respecting the 1.20 handle. With liquidity not quite back to normal levels, we may see limited downside to finish the trading week. Eventually, the downward trend should break below this critical level and target a slide towards 1.1750.
To the upside, in the event of any breakout above 1.2100, 1.2250 should serve as a resistance level to reenter a bearish position.
The trade: Sell EURUSD at 1.1975 with a stop loss at 1.2050 and a take profit at 1.1775. The Risk/Reward Ratio is 1: 2.67
Edward J. Moya
WorldWideMarkets Online Trading