Some very concerning data releases out of the Eurozone overnight with both German and Eurozone GDP coming in much weaker than expected to weigh on the major. However, despite the weaker economic releases, we believe the Euro has held up quite well with many real money accounts, model funds and larger global macro players still looking to be short the USD on an expectation that the global economy is bottoming.
PULLBACKS SEEN LIMITED TO 200-DAY SMA; BUY @1.3430
Fundamental Catalyst – Some very concerning data releases out of the Eurozone overnight with both German and Eurozone GDP coming in much weaker than expected to weigh on the major. However, despite the weaker economic releases, we believe the Euro has held up quite well with many real money accounts, model funds and larger global macro players still looking to be short the USD on an expectation that the global economy is bottoming. While this may not be the fundamental opinion that we share, we also can not fight the price action and should look to take advantage of the influence of the larger FX participants. Additionally, our own speculative sentiment index still shows retail traders net short of the Euro which is often a good contrarian indicator. Finally, we have a hard time believing that the Euro has rallied all this was and will fail to take out the next key resistance by 1.3740. As such, we will look for an opportunity to buy into dips today.
Techs – Eur/Usd: There is a major head & shoulders top forming on the hourly chart which looks like it could be triggered today to initially open some steep setbacks. However, we see these setbacks limited to the 200-Day SMA and we will look to establish a long trade just ahead of the longer-term moving in anticipation of a nasty reversal back to the upside to the 1.3740 trend highs. Once 1.3740 is taken out, we may then once again start to look for opportunities to sell the Euro. We realize that our entry for the trade is quite a ways a way and will be happy to stay on the sidelines should our entry level not be met on Friday. Markets remain extremely choppy and we need to proceed with caution. Strategy: BUY @1.3430 FOR A 1.3740 OBJECTIVE, STOP @1.3290. Stops to be trailed to cost on a break back above 1.3470. If trade triggers and 1.3 not broken, position to be closed out at NY close (4pm NY time) on Friday. Recommendation to be removed if not triggered by NY close on Friday.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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