Good morning traders.
We closed last week back at the top of the range after price action underwhelmed and failed to push the eurusd higher.
As I mentioned a couple of times in the last few days while the chart looks bullish for the eurusd pair, and there was a ´head of steam´ building for a test higher, nothing has changed from a macro perspective to give us any strong indication that the euro should be priced higher.
While there is (was) some reasoning behind the USD weakening due to a more dovish Fed it has not (yet) materialized into a convincing argument to propel the eurusd higher. Furthermore with WTI (US crude oil) pushing higher inflation expectations, a key purview of the US Fed (and all central banks), are moving back into line so there could possibly be a change in rate expectations. It seems analysts are now pricing in 2 rate rises this year from the Fed which could stall any weakening moves by the USD.
This combined with poor eurozone data and a couple of EU speakers out on Friday suggesting that risks in the eurozone are to the downside particularly amid concern for the health of the German economy, could stall the eurusd rise.
I mention this obviously because we didn´t get any follow through from the break of 1.15 last week and we are at the pivot where a break back inside the range looks a real possibility.
Of course we could still rally to the upside and this may have simply been a squeeze to stop out any weaker hands as we did not close below the key 1.1450 level but I suspect traders will be cautious at least until after Tuesdays UK Brexit vote.
Perhaps if anything positive does come out of the ´meaningful´vote in the UK Parliament on Tuesday we might get some further tests higher but given that the vote looks set to fail, its probably wiser to assume the opposite.
From a trading point of view then we are left with our pair at the crossroads and for swing traders it might be wise to let the chart (and the Brexit headlines) unfold a little this week to get a better feel for where we might be headed next.
From my perspective, I hold an agnostic view. I will continue to look for levels and areas where we are most likely to get some reaction and trade accordingly. If I were an analyst I´d be frustrated that I can´t be more prescriptive of direction but I´m a trader so we trade what we see and what the price action provides.
NB: I have started to keep a log of our model strategy performance which you can view here.
OK lets take a look at the charts and note our levels.
The Daily Chart
The daily chart clearly shows the line in the sand at approximately 1.1450. Some traders have been talking about 1.15 being the pivot for the pair but I prefer to use closes on the daily chart and in that case 1.1450 is a better indication of the range high. It held last week so we are technically still set to push up but for the reasons noted above I would be careful if you are not able to be at the charts.
We do not have much high impact news from the ECB or the US out this week apart from Draghi speaking tomorrow at 3.00pm GMT. Bear in mind also that any US data could be delayed due to the Border wall dispute and shutdown. I suspect the Brexit vote tomorrow will be the most significant in moving the euro along with any headlines by either or both the UK Govt. and the EU regarding any potential delays to article 50 etc.
The Hourly Chart
Levels as per. My plan for today is to watch price action at these levels on the lower time frame charts (the 5m is my preferred option) and trade accordingly. Remember if we do get any push either way which turns out to be a strong move our levels can change their job i.e. support becoming resistance and vice versa.
My overall view as we start the week is caution. The Brexit vote tomorrow will be critical in deciding where the eurusd is headed next.
Hard hats on!
Have a good day amigos.