EUR/USD trade idea

Looking at the wave structures on the two-hour chart I would be looking to see how EUR/USD behaves around the 61.8% retracement of the recent rally at $1.2780.

EUR
Source: Bloomberg

A test and subsequent rally could see the pair test the $1.2900 level – although this could be tough going. I prefer short positions on an overreaction through this move and into the 9 September low of $1.2959, with stops at $1.3050.

Fundamentally, the trade makes sense. Reserve managers are huge sellers of EUR’s; we saw that in yesterday’s Chinese FX reserve data. While the EUR has become the world’s preferred funding currency and upside should therefore be limited.

The European Asset Quality Review (AQR) concludes this month – recall a number of banks repatriated non-core assets back to Europe (creating Euro inflows) through late 2013 and into 2014. I would not be surprised to see this trade reverse after the review, with European banks looking for foreign assets.

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

This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa 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. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.