Euro: USD/EUR (EUR=X) Rallies Are Now a Chance To Sell
The Euro reversed to the upside late Friday as investors, cautiously optimistic about the results of a drug trial and President Donald Trump’s plan to reopen the economy, regained some appetite for risk and in the process took profits in the U.S. Dollar ahead of the weekend.
In economic news, Euro Zone inflation slowed sharply in March to 0.7% year-on-year, the European Union statistics said on Friday confirming its earlier estimates.
Eurostat also confirmed its earlier estimates for core inflation figures in the 19-nation single currency bloc, which also point to weaker price increases last month.
Overall inflation fell to 0.7% from 1.2% in February, Eurostat said, further away from the European Central Bank’s target of below, but close to 2 percent over the medium term.
An indicator that excludes unprocessed food and energy prices, which the ECB calls core inflation and watches closely in policy decisions, showed prices grew 1.2% in annual terms, down from 1.3% in February, in line with previous estimates.
Shayne Heffernan Trade Idea
“We have been noting the increasingly corrective configuration developing on EUR/USD in the past couple of sessions. This took a step forward yesterday as a decisive break of the three week uptrend confirmed with a second consecutive bearish candle. We are now seeing lower highs and lower lows form as the dollar has begun to strengthen. This is reflected in the negative bias developing on daily momentum indicators, something that is also present on the hourly chart. Breaking the old uptrend and using the underside as a basis of resistance, the old pivot band between $1.0890/$1.0925 has become a basis of resistance. Rallies are now a chance to sell, and so reaction to this morning’s rebound will be key. A rally off yesterday’s low at $1.0815 is back towards the $1.0890 resistance area again. So, if the dollar bulls are now in the ascendancy this will be a barrier and a likely area for another lower high. With both daily and hourly momentum showing negative configuration now, we prefer to use rallies as a chance to sell. A decisive move clear below $1.0830 would open a test of support of the early April low around $1.0770.” Shayne Heffernan PhD in Economics
Why This Matters
French President Emmanuel Macron warned that the European Union could collapse unless it finds a way to share the costs of the crisis, the coronavirus has exposed the vulnerability of the single currency.
“EUR’s status might have been evolving since the COVID-19 outbreak but, going forward, we are bearish. This is because we expect European data to decouple further from US data, and that is partly due to the lack of a coordinated European fiscal response – which we remain concerned about,” wrote Bank of America strategists in a note to clients.
Trading the EUR will be interesting this week then, especially when taken into context of the debate being had as to where to for the USD. Funding markets aside, you still pay carry to be short the USD and that often gets overlooked.
Options markets often give good insight, and I see EURUSD 1-week risk reversals (1-week call volatility minus 1 week put vol) headed into -0.84. This shows a slight increase in put vol buying, which offers sentiment that traders are seeing modest downside risks. 1-month RR sit at -0.94 and shows a rising belief in downside potential. Spot EURUSD has found sellers into the 20-day MA and the bears need EURUSD to clear 1.0816 for a test of the 1.0766 swing. It’s a tough pair to trade now, and EURCHF is perhaps the cleaner trade – that is, if bearish EU assets.
Overall, the bias in prices is: Downwards.
The projected upper bound is: 1.11.
The projected lower bound is: 1.06.
The projected closing price is: 1.09.
A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 25 white candles and 24 black candles for a net of 1 white candles.
A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 25.7945. This is not an overbought or oversold reading. The last signal was a sell 3 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 45.82. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 29 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -33. This is not a topping or bottoming area. The last signal was a buy 19 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 5 period(s) ago.
Rex Takasugi – TD Profile
FOREX EUR= closed down -0.001 at 1.086. Volume was 38% below average (neutral) and Bollinger Bands were 10% narrower than normal.
Open High Low Close Volume 1.087 1.090 1.084 1.086 54,601
Technical Outlook Short Term: Neutral Intermediate Term: Bearish Long Term: Bearish
Moving Averages: 10-period 50-period 200-period Close: 1.09 1.10 1.10 Volatility: 10 14 8 Volume: 104,305 111,636 80,675
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
FOREX EUR= is currently 1.7% below its 200-period moving average and is in an downward trend. Volatility is extremely low when compared to the average volatility over the last 10 periods. There is a good possibility that there will be an increase in volatility along with sharp price fluctuations in the near future. Our volume indicators reflect volume flowing into and out of EUR= at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on EUR= and have had this outlook for the last 12 periods.
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