Fundamental Analysis:- The market was surprised to see the ECB hold off on any tightening of monetary policy on Friday creating quite a volatile day. A drop in asset purchases was expected with some forward guidance on the first interest rate hike. Instead the Monetary policy statement suggested rates would be on hold for some time until more data can support a continued strengthening economy.
The US raised interest rates as expected which was primarily priced into the market and caused a sell off on the Dollar against other strong currencies. However the latest policy statement from the ECB caused a reversal in the EUR/USD strength proving that the monetary policy divergence between the two central banks is still in effect and we should see this currency pair return to former lows. Although the early 2017 lows of 10500 might be a little optimistic I will be looking for retests of 11540 in the short term.
Read the ECB monetary policy report
Technicals:- As we can see from the main Weekly chart we are sitting just above a major support level of 11540 which was also earlier resistance from April 2016 and June 2015. There will be arguments from technical traders that this chart is showing a buy and I have to agree that if I didn't study the fundamentals I would be on their side. The chart certainly warrants a substantial bounce from this support level which brings me to the daily chart below.
From the April high of 124000 we had a good run down with consistent strength in the USD this was stopped by the 154000 support level at the end of June. Investors started buying the Euro on expectations of a better than actual ECB monetary policy and a retracement of the downtrend just made the 38% Fibonacci level as shown above. It is also evident that the RSI is in strong downtrend limiting any upside.
This brings me to the 4 hour chart below to look for a possible trading opportunity.
As you can see there is a localized area of previous support around the 11663 area which is also the 38% Fib retracement level from Fridays big drop. It is this area of confluence that I will be looking at for an entry with a stop loss above either the 61% retracement level or to play it safe above the 11830 level. Being careful to keep a decent risk reward ratio we will need to hit at least the previous line of major support at 115400 but will look for a break through of this level and hopefully a longer term view of 112000.
For the signal on this trade join the Whats App group for 31 days Free Trial
The US raised interest rates as expected which was primarily priced into the market and caused a sell off on the Dollar against other strong currencies. However the latest policy statement from the ECB caused a reversal in the EUR/USD strength proving that the monetary policy divergence between the two central banks is still in effect and we should see this currency pair return to former lows. Although the early 2017 lows of 10500 might be a little optimistic I will be looking for retests of 11540 in the short term.
Read the ECB monetary policy report
Technicals:- As we can see from the main Weekly chart we are sitting just above a major support level of 11540 which was also earlier resistance from April 2016 and June 2015. There will be arguments from technical traders that this chart is showing a buy and I have to agree that if I didn't study the fundamentals I would be on their side. The chart certainly warrants a substantial bounce from this support level which brings me to the daily chart below.
From the April high of 124000 we had a good run down with consistent strength in the USD this was stopped by the 154000 support level at the end of June. Investors started buying the Euro on expectations of a better than actual ECB monetary policy and a retracement of the downtrend just made the 38% Fibonacci level as shown above. It is also evident that the RSI is in strong downtrend limiting any upside.
This brings me to the 4 hour chart below to look for a possible trading opportunity.
As you can see there is a localized area of previous support around the 11663 area which is also the 38% Fib retracement level from Fridays big drop. It is this area of confluence that I will be looking at for an entry with a stop loss above either the 61% retracement level or to play it safe above the 11830 level. Being careful to keep a decent risk reward ratio we will need to hit at least the previous line of major support at 115400 but will look for a break through of this level and hopefully a longer term view of 112000.
For the signal on this trade join the Whats App group for 31 days Free Trial
Trade closed manually:
closed +97 pips