Good morning Traders. Trust you had an enjoyable and relaxing weekend.
As we´ve mentioned countless times it seems now, the eurusd is firmly back in the range from the end last year. However, while there is always a chance it may stay there for some time yet, I get the feeling that we could be set to test the lows of the range down to 1.13 and possibly deeper to 1.12 and below. I think the ECB press conference on Thursday could be the catalyst.
My view is that we have had a failed upside break so it would be natural to expect the pair to test lower prices purely from a view that what can´t go up must come down. But more than that the USD appears to be back in vogue (when was it not lately) with monetary policy divergence at the top of traders minds.
At the end of last year all the talk was of a coming recession in US and global equities. However, this doesn’t appear to be playing out, just as it hasn’t for the last x number of years when analysts have been calling for a reversal in global stock fortunes.
Recent US data has not shown any real backtracking in the strength of the US economy. Sure, it may not be growing as fast or strongly as it was at the start of last year and we have had a more dovish tone from the Fed recently responding to some less vigorous data.
But short term swings in data and sentiment don´t appear to be stalling the S&P500 or the DJI which are strongly up from the start of Jan. This also seems to be the case with the USD which is showing little if any sign of heading significantly lower.
At the same time if we look at data in the eurozone (e.g. CPI´s and industrial production) they do seem to be weakening much more than the same data for the US.
Nearly all EU official commentary and Draghi himself has alluded to this and given the political (and economic) risks from Brexit in particular, my instinct is that sentiment is negatively weighing on the euro which would naturally lead to an expectation of lower eurusd prices.
We already know that the ECB are not considering moving rates until after this summer which is fueling monetary divergence with the US. The recent weak EU data might push this guidance out further and in doing so compound this divergence.
If this is the case then a strong USD via monetary policy divergence is going to play a major role in the direction of our pair.
The ECB press conference will be critical on Thursday with regard to the above thinking.
As an aside and before I get to the charts for today here is a link to the updated performance of our model strategy.
Ok lets get to the charts for today.
The Daily Chart
Fridays red outside candle is a classical signal of technical bearishness. However, we did fail to close lower than the level I had indicated on the chart at 1.1360 which is also the 61.8 Fib of the range high and low from Nov 12 last year to the 10th of Jan this year.
A daily close below here would open up 1.13 and lower. We also have an upward rising trend line which would come into play at around 1.1340 to 60 depending on timing. Again a close below and a retest of the underside of this TL could help to confirm a move lower.
Consequently from a chart perspective we have a bearish look to it but there are some hurdles it needs to break through to confirm a downside push.
Today might also see muted price action as the US is closed due to Martin Luther King day.
The Hourly Chart
Levels as per.
From a level pov S & R remain roughly the same as they have been for the past week. On Friday we came back up from the S1 I posted and maybe we are looking to test the near term highs back above 1.14 to kick off with. In line with my thinking noted above I will initially be looking for any moves higher into our Resistance areas to short but as ever, if price action tells me I am wrong I will look to quickly change gear.
Have a good day and…. well you know the drill; trade the levels, maintain tight risk and if you are able, follow the price action on the lower time frame charts to craft your entries and exits.