Congestion is symptom of the entire currency market; but many pairs are experiencing this price action in the middle of burgeoning trends and potential breakouts – not conducive to strong positioning that requires clear levels for entry, stops and targets. EURUSD, on the other hand, is enduring the same chop but does so within the confines of a clear technical pattern.
[B]Why Would EURUSD Hold a Range?[/B]
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· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 1.3500 (Trend, Fib)[/B]
[B]-Range Bottom: 1.3100 (Fib, Pivot)[/B]
· As the market’s most liquid currency pair, EURUSD is naturally attuned to the ebb and flow of risk sentiment while avoiding much of the volatility that comes along with this link. Looking at this pair, we gather the same sense that is felt with entire financial markets – that a breakout will come sometime down the line. Scheduled event risk fills out over the coming week; but for a true breakout to trend we need something like a [clean ‘stress test.’](http://www.dailyfx.com/story/special_report/special_reports/Dollar_And_Risk_Tied_To_1239832039097.html)[B][/B]
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· Over the past month-and-a-half, EURUSD has developed a very clear pennant formation. Horizontal support at 1.31 is the primary concern. With three unique confirmation points to test the 1.3100/30 area, our confidence in the 50% Fib and pivot on the same plane is bolstered. However, it is important to note that this is a breakout pattern.
[B][I]Suggested Strategy[/I][/B]
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· [B][U]Long[/U][/B][B]: Half-sized entry orders will be placed at 1.3145 which is aggressive considering support.[/B]
· [B][U]Stop[/U][/B][B]: An initial stop of 1.3045 is relatively tight as it covers only the range low. To secure profit, move the stop on the second lot to breakeven when the first target hits.[/B]
· [B][U]Target[/U][/B][B]: The first objective equals risk (100) at 1.3245 and the second[/B][B] target will be 1.3345. [/B]
[B]Trading Tip[/B] – Congestion is symptom of the entire currency market; but many pairs are experiencing this price action in the middle of burgeoning trends and potential breakouts – not conducive to strong positioning that requires clear levels for entry, stops and targets. EURUSD, on the other hand, is enduring the same chop but does so within the confines of a clear technical pattern. A confluence of support at a round figure (1.3100) draws the market’s attention and thereby leverages the level’s influence on price action. However, this should not be taken to mean the floor is impenetrable. In fact, the more obvious the support is to range traders, the bolder the target is for breakout traders. The pennant formation price action has developed since the beginning of March is a [terminal pattern](http://www.dailyfx.com/story/bio2/British_Pound_Pulls_Back__Structure_1239891184717.html) that must come to a break. Therefore, our range setup is risky and in a race against time. There is still a wide band to develop short-term swings in (with the falling wedge that marks the ceiling on this pattern up at 1.35); but a break will come on either on a major fundamental event or through a mere shift in investor sentiment. With this under consideration, we have purposely chosen an entry that is aggressive and a stop that is not far below the swing low from last week. Since the more time that passes, the closer we come to the resolution of this technical pattern; we will close all open orders by Friday’s afternoon session in New York.
[B]Event Risk for Euro Zone and US[/B]
[B]Euro Zone[/B] – The euro is treading fundamental water. No longer is the Euro Zone considered an economy that can successfully weather the global recession and financial troubles – rather the infection is simply taking longer to set in. Up until a month ago, market participants were waiting on the next shoe to drop. Concern surrounding the potential collapse or default of an Eastern European economy which would cause a back lash amongst the members of the EMU was considered the most alarming threat. However, with global credit easing and policy officials stepping in with moderate help to tie the countries over, the crisis was at least temporarily adverted. Now traders must turn to the next concern on the list: interest rates. Debate is raging as to whether the ECB will maintain its pace; and data will play heavily into this speculation. Sentiment and activity figures due next week will have the most pull.
[B]US[/B] – Whereas the dollar used to be the primary market mover in the FX world, it is now finding itself jostled around by the counter currencies it is valued against. This considerable shift in market sentiment has developed over time as the primary role of the greenback has been put under review. Right now, the market is not clamoring for a safe haven that provides deep liquidity, nor is there an overwhelming drive to seek out the highest yield at the expense of risk (which the US is considered well behind the curve on). Congestion is the dominant force in the market right now because risk sentiment is vague. On the other hand, this could leverage the market’s reaction to run-of-the-mill economic indicators.
[B]Data for April 17 – April 24[/B]
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[B]Data for April 17 – April 24[/B]
[B]Date (GMT)[/B]
[B]European Economic Data[/B]
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[B]Date (GMT)[/B]
[B]US Economic Data[/B]
Apr 17
Euro Zone Construction Output (FEB)
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Apr 17
U. of Michigan Confidence (APR P)
Apr 21
German ZEW Survey (APR)
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Apr 20
Leading Indicators (MAR)
Apr 23
Euro Zone PMI Composite (APR A)
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Apr 23
Existing Home Sales (MAR)
Apr 24
German IFO Business Climate (APR)
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Apr 24
Durable Goods Orders
[I]Questions? Comments? You can send them to John at <[email protected]>.[/I]