I’m hoping the week has been kind to you. Well, to me, this is just a heads up and I really think this should be another opportunity for you to risk less and earn more in the next couple of trading days. I read somewhere that gaps are meant to be filled and if that is the case, then this filling rule means the Euro should depreciate considerably until after the gap created after French election euphoria is filled. Mind you, the Euro has been rallying for five straight weeks and with fundamental concerns especially from Mario Draghi and ECB, the strong Euro is not doing a favor to inflation which is already low. Yes, there were no revisions of Q1 GDP and CPI data for last month, investor confidence is soaring in Germany and it’s the first time in three months that the Eurozone is printing such high trade surpluses. That is a big plus but then inflation, which called for stimulus, is still growing at a slow pace despite Mario insisting there is no tapering of QE going forward. Going forward, it’s my opinion that the ECB will prioritize a weaker Euro to prop up inflation and that means a selling opportunity. Again, look at the economic data flowing in from New Zealand. Commodity and milk prices are rising and as if that is not all, the latest milk export data showed that milk exports were at their highest in two years. If this continues-bearing in mind that milk is their main export, the Kiwi should remain strong with RBNZ not worried about the impact of the stronger currency.
To the charts now and the first thing you will notice is that strong bearish engulfing candlestick which was formed as this week closed. That is a clear double bar reversal pattern with a rare sell signal printed in the weekly chart. Zooming in to the daily chart and you will notice the continued bear run with widening %k and %d indicative of increasing bear momentum. I will therefore base my trade on these occurrences and trade as follows:
Sell Limit: 1.5815-1.5890
Stop Loss: 100 pips from point of sale. Ideally, place it above 1.6000
Take Profit: 1.51-1.54 but I will target 1.51 for a 1:4-7 risk reward ratio
I will also recommend dumping the Euro across the board while buying the Yen, CAD, Yuan and CHF