EURUSD Technical Projection
EURUSD recent gains may have disappointed the bearish outlooks for Euro-Dollar that literally flooded the market. The technical bulls would have innocently said a bottom has been found at 1.2363 that unleashed the infamous double-bottom reversal pattern into the market. We were amongst the bull camp that suggested a recovery is due as we elaborated in the weekly market update and our intraday trading strategy for EURUSD. The bears stand firm with their analysis, reasoning the recent gains are merely corrective and are a wonderful opportunity to reload short trades into the FX markets. The bulls on the other hand wave the double-bottom reversal pattern, yelling, “Are you all blind?” This is the moment where we step in and provide our projection for EURUSD towards the year end.
Sovereign Bonds Purchasing
Mario Draghi triggered the heavy selling in Euro as the European Central Bank (ECB) voted to impose negative rates as well as the introduction of a fresh Quantitative Easing (QE) program. Many forex trades shorted the Euro as the effects of negative interest rate and QE will often weaken the currency as we have witnessed from the Fed. The Purchasing Manager’s Index (PMI) released on 20 November painted a bleak picture. Germany, amongst the strongest economies in the Euro zone is on the verge of contraction. The German 10Y Bund auction was technically uncovered in today’s session, boosting the pressure on Mario Draghi, which the council is unpleased with at the time of this writing.
There are a couple of choices on the table, take action or adopt a wait-and-see mode if economic data improves from the current bond-purchasing program. ECB member Constancio commented in today’s session purchasing sovereign debt a fresh QE would be the next step, possibly as early as the first quarter in 2015. EURUSD was initially shocked by the news (which triggered our long trade in our intraday strategy) but a snap recovery was noted. Under the circumstances we turn to technical analysis to show to lighten the future trend of EURUSD. It appears to us the market bears are due for an unpleasant surprise.
Above is a quick recap of our intraday strategy, which we closed with a decent profit. We will now proceed to EURUSD present analysis.
EURUSD 60 Minutes Chart
Please click on the chart to enlarge:
As you may have noticed there is an established uptrend in Euro-Dollar as following higher highs and higher lows. Every technical trader will find it difficult to argue that the current hourly trend in EURUSD is a definitive downtrend. As long as the price does not break below its former highs the uptrend is expected to continue. We will compare the Dow Jones 30 chart to estimate the duration of the intraday uptrend.
DJ30 4hr Chart
Please click on the chart to enlarge:
As you may see the answer is indefinitely or until the support level of the former high is violated by the market. Despite all the noise we must conclude EURUSD is due to maintain its bullish trend where smart traders would seek to capitalize on dips. As there were many predictions and recommendations suggesting to sell Euro-Dollar the current circumstances would allow hefty stop loss orders to be gunned by the market, especially around 1.2600. The next ECB meeting on 3 December will be the ice breaker. Will Mario Draghi hint a sovereign bond buying is due in 2015? If yes, all the hogs that made a note of EURUSD gains will be massacred by the bears in what commonly referred to as a bear-trap. No stops are immune, even the one’s that are located in the 1.2350 region. The 4 December may be a day where EURUSD bulls will be mercilessly butchered by the ECB as Draghi may attempt to make a stand over his questionable performance as the ECB President. We release our next strategy for the EURUSD as near the 4 December. You are welcome to subscribe for our future market updates and read our latest market research.
As famous trader once said, “The market is not evil, it simply separates dumb people from their money.”
03/12/14 UPDATE: We have updated our EURUSD strategy in the following FX research.