Many of the dollar-denominated majors have developed congestive patterns over the past six to eight weeks. This is no doubt a product largely derived from the US dollar itself; but it is further a situation that is mirrored in most currency pairs that have a tangible link to risk appetite.
[B]Why Would EURUSD Hold a Range?[/B] [B][/B]
· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 1.4165 (Trend, Fib, Range High)[/B]
[B]-Range Bottom: 1.3750 (Pivot, Fibs)[/B]
· Underlying fundamental and scheduled event risk is significant for EURUSD. Like nearly every other currency pair in the market, this most liquid cross will no doubt take its cue from shifts [in risk appetite through earnings](http://www.dailyfx.com/story/special_report/special_reports/Earnings_Season_Looks_toTake_Control_1247712984766.html) or any [financial implosions](http://www.dailyfx.com/story/currency/eur_fundamentals/US_Dollar_Falls__Japanese_Yen_1247791302758.html) should it catalyze fear or greed among speculators. However, aside from this unforeseeable risk, there is still plenty of data on tap; but little of it guarantees volatility. The euro will mark hold the bulk of the risk.
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· Similar to [patterns seen with a few of the other majors](http://www.dailyfx.com/story/dailyfx_reports/daily_technicals/Weekly_Classical_Outlook__USD_Hanging_1247854542125.html)(USDCHF, AUDUSD, NZDUSD), EURUSD has produced a clear and consistent range formation since the beginning of June. This sideways price action follows a medium-term bullish bias, but resistance has a larger trendline as well as a major 50% Fib and a series of daily highs.
[B][I]Suggested Strategy[/I][/B]
[B][/B]
· [B][U]Short:[/U] Entry orders will be placed at 1.4150, which is just off this week’s highs.[/B][B][/B]
· [B][U]Stop:[/U] An initial stop of 1.4230 is buffer enough for a false break on the range, but not the trend. To secure profit, move the stop on the second lot to breakeven when the first target hits.[/B][B][/B]
· [B][U]Target:[/U] The first objective equals risk (80) at 1.4070 and the second target is set to 1.3910. [/B][B][/B]
[B]Trading Tip [/B][B][B]–[/B][/B][B] Many of the dollar-denominated majors have developed congestive patterns over the past six to eight weeks. This is no doubt a product largely derived from the US dollar itself; but it is further a situation that is mirrored in most currency pairs that have a tangible link to risk appetite. This is something to keep in mind when looking for range trades as we could be leveraging exposure on one side of the market (for or against risk appetite). And, should this underlying theme shift in the wrong direction; it could wipe out a series of trades. With this in mind, our EURUSD setup looks technically and fundamentally appealing on its own. There may be a bullish bias through price action leading up to early June; but resistance is well formed and a long-term trendline presents a clear ceiling. Event risk is a little trickier. The economic dockets for both currencies are thin; but those releases that are present have shown market moving potential at one point or another in the past. The bigger threat is sentiment. Risk appetite may have settled over the final two days of this week; but it is clear that price action can go zero to sixty quickly during earnings season. We will not place our entry orders until after Monday’s open so that we can gauge price action to begin the week. What’s more, if we have active exposure to USDCHF, AUDUSD or other former setups on the same side of the risk scale, we will either reduce position size or choose between this new position and the existing ones. We will cancel all open orders by Tuesday as we are near entry now and this setup should play out quickly. [/B][B]
Event Risk for Euro Zone and US
[/B][B]Euro Zone[/B] – Though most of the earnings reaction remains with the US dollar and Japanese yen, the euro will also have its response to the health of vital players in the global financial market. Policy from some Euro Zone members has taken a decidedly conservative approach with calls to work down deficits and withdrawal support from the financial markets. Should global conditions in fact improve going forward, this will be seen as a smart move that improves the economy’s appeal among its counterparts. On the other hand, should a credit crisis spread from Eastern Europe or anywhere else, the region could be vulnerable. The economic docket presents problems of its own. Advanced PMI numbers will amplify traders’ expectations of 2Q GDP while confidence surveys tip sentiment off.
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US – [/B]For the dollar’s part, this past week’s primary fundamental driver has been investor sentiment. Without the desperate need for liquidity, the concept of safe haven has changed. For the dollar, the ballooning budget deficits and unstable economic recovery (though the US recovery looks to be more certain and steady than most of its major counterparts) have eroded its role as a safety currency. Earnings season state-side promises to be a significant market driver owing to its contributions to growth forecasts and the health of financial markets. Next week, TARP banks like Wells Fargo, Bank of New York, US Bancorp, and Fifth Third will release their numbers. As for the economic calendar, housing data is the theme of the week. However, Fed Chairman Bernanke’s policy report to the House of Representatives and Senate likely poses the greatest potential for volatility.
[I]Questions? Comments? Send them to John at .[/I]