EUR/USD fell to a one-week low after this weekend’s highly anticipated Greek vote surprised market investors, with an emphatic NO vote on the referendum question to yielding to further austerity. The market reaction took the currency pair to the 1.0968 level, but a rebound occurred after Greek Finance Minister Yannis Varoufakis resigned, a sign that future negotiations could be easier now that the difficult negotiator was out. Regardless of any optimism regarding debt relief that may come with Greek Prime Minister Mr. Tsipras and European authorities, euro bearishness could yield deeper drops targeting the 1.08 handle.
Price action on EUR/USD for a second consecutive week gapped lower, but this time the rebound completely stalled after filling the gap. Price is tentatively testing the 100-day SMA which is trading at the 1.1038 level. As expectations increase for a Grexit to occur, we could see downside target the 1.08 level initially and eventually fresh 2015 lows below the 1.0461 level.
Price action on the EUR/USD 60-minute chart shows that the opening gap formed a bullish ABCD pattern that ended when price made the 1.1094 session high. To the upside, key resistance will come from the 50-day SMA at 1.1179. Initial downside may target the 1.08 handle. A breach below this key level could clear the path to the 1.04 zone.
The trade: Sell EUR/USD at 1.1050, with a stop loss at 1.1150 and take profit at 1.10850. The risk/reward ratio is 1:2
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading