EUR/USD

EUR/USD: Early Europe market analysis

Courtesy of Chifbaw.com and you can view charts etc. on their site.

Recommendations: 

  • Short the EURUSD at 1.2730 with SL 1.2750 target 1.2650 PROVIDED that volatility contracts (the market stays range bound 1.2740-1.2780 till 12:45 GMT) and a rate cut is announced.
  • Buy EURUSD in between 1.2630 and 1.260 with SL 1.2570, targets 1.2650, 1.2670, 1.2730.

Paradigms:

  • The EURUSD will not make new highs (higher than 1.317) until Spain requests a bailout and the OMT is activated.
  • The market will have a moderately bearish bias until further clarity emerges on the US Fiscal Cliff issue.

Analysis: 

This morning the market has a bearish bias, continuing the risk-off started by the US election results. The ECB council meeting today is a key risk event and we expect the market to stay quiet (volatility contraction) until the ECB announces its rate decision. Yesterday’s bearish comments by Draghi suggest that a rate cut will be discussed. Given that the economic numbers have been mostly bad all across the Eurozone, given that Germany’s economy is now most likely entering a recession, given that the inflation rate in Germany (~2%) is moderate, and given that Germany is an export led economy, we believe that there are good chances for a rate cut (-0.25%) to be announced today. This rate cut is possibly already partially priced in. Our recommendation is to short the EUR/USD on a volatility breakout if there is a rate cut indeed. Our target to the downside is 1.2650, thus breaking the down trend channel that we identified earlier (see graph). Buying the EUR/USD is also an option if the market gets overly bearish and moves closer to 1.260. Two key levels to watch are the 100-MA at 1.263 and the 50% Fibonacci retracement at 1.2605. Our models also show that this area has strong probabilities of reversal or saturation of the price action if reached today. Keeping these long positions overnight might be a good idea since some of the EUR/USD shorts will cover tomorrow. If the ECB would maintain its interest rate at 0.75% the upside move will remain limited and will not offer good short opportunities.

  1. Hey, Iridium the recommendation doesn’t make sense. The SL is within the range expected? And in fact the EU has been above 1.2740 for most of today so far!??

    1. Good morning Pandu and Papillon,

      If you read carefully the recommendation, this is about entering the trade when the ECB announces a rate cut, that is when the market starts fastly moving. If we have a rate cut, we will go very fast down, and a stop loss at 1.2750 will be sufficient. Entering now the market is premature since we might have no rate cut as the consensus seems to say.

  2. I am quite agree with Pandu comment. It seems too risky to set this SL. It would have been better to set above 1.2780 but it’s just a recommandation 😉

  3. Hi

    He wants to say that is ECB announce a rate cut and the 2740-2780 range break down, just short 2730 and place a SL at 2750 in case of the sell off isn’t strong

  4. Iridium, thanks for the clarification. The original report seems to talk about ‘European open’ hence the confusion.
    otoh, if you’re planning to enter after the ECB announcement, one has to be very lucky getting such a good entry. If indeed there is a rate cut, there is likely to be a 50-100 pip move in 5 seconds! I like to enter markets either before such events, or better, after the dust has settled.

  5. I’ve just read, well skimmed through to be accurate, the London morning reports from 3 big banks and all say same that ECB and BOE stay on hold. Then again, all analysts usually say same thing!

  6. May be the trader in me wants to see a rate cut so there is something to trade 🙂 because if there isn’t, I think it’s better to keep the money asleep 😉

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