The Euro remains very well correlated to market risk appetite and performance in global equity prices. With global equities rolling back over of late on an escalation in fears over the state of the US auto sector, and with more downgrades of European countries along with failures of regional European banks, we see no reason for much optimism with any rallies to be used as good sell opportunities.
EURO/DOLLAR: LOOKING TO SELL BY PREVIOUS SUPPORT TURNED RESISTANCE
Fundamental Catalyst – The Euro remains very well correlated to market risk appetite and performance in global equity prices. With global equities rolling back over of late on an escalation in fears over the state of the US auto sector, and with more downgrades of European countries along with failures of regional European banks, we see no reason for much optimism with any rallies to be used as good sell opportunities. Additionally, we continue to see the Euro as exposed on the monetary policy side as well, with market participants not yet pricing in the eventual likelihood that the ECB will indeed need to resort to a quantitative easing approach. Data out of the region has certainly not been supportive of the Euro overnight with weaker German unemployment numbers and softer Eurozone CPI.
Techs – Eur/Usd: The drop out from the 1.3740 highs reached on 19Mar has been quite impressive with the pair pulling back all the way to 1.3115 on Monday ahead of the latest minor bounce out from the 100-Day SMA. We had written of the need for the market to fill the parabolic price action from a few weeks back which catapulted the major from 1.3070 to 1.3500 following the FOMC event risk, and this indeed has transpired. From here, there is a risk for more of a bounce before ultimately once again rolling back over for a resumption of the broader downtrend. We feel the best approach given the choppy nature of the market is to look for opportunities to sell into rallies, and as such we will use the previous support now turned resistance by 1.3415 (the consolidation lows from last week) as an entry point for fresh shorts. Strategy: SELL @1.3415 FOR A 1.3115 OBJECTIVE, STOP @1.3515. Stops to be trailed to cost on a break back below 1.3365. If trade triggers and 1.3365 not broken, position to be closed out at NY close (5pm EDT) on Tuesday. Recommendation to be removed if not triggered by NY close on Tuesday.
Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
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