It is no secret that the Greenback has been on the receiving end of the resurgent Euro. Year to date, the euro has gained a massive 6.3% against the USD and all this was fuelled by the idea that the entire Eurozone has turned round that proverbial corner. With Le Pen Frexit ideas banished and Trump administration policy reforms shambolic, the Euro appreciated and as investors viewed the initial pro-dollar “Trump Trade” ideas as hot air and possibility of future resistance from congress a real impediment on how the much awaited tax reforms will be implemented. Furthermore, before the close of last week, the Eurozone Q1 growth rate was revised higher from 0.7% to 1.2% and this was above average growth since 2010, the average growth has been 1.1%. You can clearly see these developments from the weekly chart of this currency pair. The Euro has appreciated considerably buoyed by economic data streaming in and by the look of things, I think this is about it and a time for correction is underway.
My weekly charts points to an overextended and overvalued Euro and this is apparently across the board. In this time frame, last week’s candlestick closed as an inverted hammer and above the upper BB. With a 2.0 standard deviation in place, it means a chance of a major correction to bring equilibrium is underway mainly because of two confluence conditions. The inverted hammer head closing above the upper BB and the sell signal printed by the stochastics in the overbought territory. If you also paste a Fibonacci tool from last year’s Hi-Los, then this inverted hammer=selling pressure-is forming at the 23.6% level-which is significant statistically.
also take note of the overextended and undervalued USD Index in the weekly chart. it closed below the lower BB and do you think this is a coincidence? I think not. Load up the USD.
In light of this therefore, I will trade short and trade as follows:
Stop Loss: 1.1260
Take Profit: 1.08 and a break below that gap and support mean 1.03-1.05 is ideal.
Have a good trading day and let me know what you think.