Established in 1974
185,800 clients worldwide
Over 15,000 markets

The euro is seeing signs of life

The EUR has seen signs of life lately, albeit on reasonable short covering, which will no doubt be highlighted on the weekly Commitment of Traders (CoT) report (released Saturday morning for Australians).

euro
Source: Bloomberg

In support of EUR, we saw a strong IFO business survey data from Europe adding to the raft of improving data points for the monetary union. On a more negative footing, reports have suggested that Greece has until early next week to give a more detailed response on how it will meet its reform commitments.

On the other side of the pond, the US produced a very poor February durable goods report, in turn causing analysts to cut their forecasts for Q1 GDP and sending the NASDAQ sharply lower. Personally, I wouldn’t be surprised to see Q1 growth print as low as 1.5%.

Bear in mind that, just like in 2014, Q2 growth is expected to snap back to between 2.5% and 3%, so as long as we start seeing more encouraging data in the March data series we can still expect the Federal Reserve to raise the funds rate in September. In theory, the sell-off in the USD could have given traders a new entry point to redeploy short positions.

Looking at the daily candles of EUR/USD, we can see the pair really finding sellers into the 61.8% retracement of the 25 February to 15 March sell-off at $1.1036. While the post-FOMC meeting spike high of $1.1045 (as circled) is the key line in the sand that the bears will want to hold.

With this in mind, I feel selling a small position at market (currently $1.0971), with a stop loss above these resistance points (I would look at $1.1070) looks quite compelling. I’ll probably look to add to the small position on a break of the 23 March low of $1.0767 as the trade is working and we generally want to do more of something that is working!

This should also coincide with more bearish conditions in the various oscillators, which at present aren’t giving any strong sell signals.

Key drivers in upcoming US trade will be the forthcoming narrative from Fed presidents James Bullard and Dennis Lockhart. Both are hawks and therefore should support my trade idea.

EUR/USD
Click to enlarge

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.

Find articles by analysts