Today's major euro rally stemmed from a disappointing ECB monetary policy decision. Dollar bulls hoped for a deeper cut to the deposit facility rate and a possible increase in size of the monthly QE rate. The ECB did extend the QE end date till at least March 2017 and broaden the assets bought to include regional debt. In addition they raised the 2015 and 2016 GDP forecasts, but lowered the 2016 and 2017 inflation forecasts.
The ECB decision and conference produced the biggest single day euro rally in six years. Price rallied more than four big figures and is now approaching a plethora of resistance from the 50-, 100-, and 200-day SMA(s). The key 1.0977-1.1061 zone will provide major resistance, but if the rally continues, we could see upside target the 1.1250 level.
The EUR/USD daily chart is displaying a potential pause with the strong bearish trend that has been in place since the May 2014 high of 1.3392. Since breaking above the trendline that started with the 1.1494 high, price now appears poised for a major short covering rally. If bearish momentum resumes, initial support could come the 1.0750 support level. Further pressure may eventually target the major 1.0461 low. Deeper support may target the parity level and a daily close below that level could open the door to .9688 area.
The trade: Sell EUR/USD at 1.1060, with a stop loss at 1.1110 and take profit at 1.0860. The risk/reward ratio is around 1:4