New EUR/USD trade idea

EUR/USD has seen some reasonable short covering in the last couple of days and has broken above wedge resistance. In theory, this pattern could see the pair target the $1.2900 level, so this break has been widely talked about by traders today.

Source: Bloomberg

The oscillators are interesting as well, with a bullish crossover on the MACD and stochastics. We’ve also seen a break of the 20-day moving average.

As we enter European trade, the EUR will be widely watched as the European Central Bank (ECB) is due to offer cheap liquidity to European banks in its second Targeted Long-Term Refinancing Operation (TLTRO). This is seen as an essential component in achieving the sorts of balance sheet expansion the ECB had intended.

The market consensus is that banks will take up €148 billion in funds and it’s from here that we can work out the EUR/USD playbook. A take-up significantly shy of consensus could weaken the EUR on the premise that the ECB would need to be more aggressive.

Full-blown government bond purchases could therefore be announced in January. A larger take-up of €200 billion or more would be EUR positive and the momentum could continue.

My sense is that the take-up will be low, but there is no denying that the current EUR/USD set-up is looking more bullish.

Click to enlarge

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material 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 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. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.