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EURUSD: bulls disappointed by Draghi’s speech

Previous:

On Monday the 26th of November, trading on the EURUSD pair closed down. In the first half of the day, the pair rose from 1.1340 to 1.1384. Support was provided to the euro by the drop in Italian 10-year bond yields to 3.170%, which occurred in response to the Italian government hinting that it may be willing to cut its deficit target for next year. The bulls erased all their gains before the day was out on the back of ECB President Mario Draghi’s remarks. Draghi warned of an economic slowdown ahead, which prompted euro sell-offs and brought the rate against the dollar down from 1.1384 to 1.1326.

Day’s news (GMT 3):

  • 14:00 UK: CBI distributive trades survey – realised (Nov).
  • 17:00 US: housing price index (Sep).
  • 19:00 Eurozone: ECB’s Mersch speech.
  • 22:30 US: FOMC member Bostic speech, Fed’s Evans speech, Fed’s Quarles speech, Fed’s George speech.
  • 23:00 New Zealand: RBNZ financial stability report.

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Fig 1. EURUSD hourly chart.

Current situation:

My prediction of a rise for the euro was proven correct. The rate recovered to the LB balance line and 45th degree. The balance line acted as a resistance for buyers. After a second, unsuccessful attempt at breaking through, they closed their long positions. Then, on the back of Mario Draghi’s speech, the euro retreated to 1.1326.

The EURUSD pair is currently trading at 1.1340. In my forecast, I’ve gone for a rise on the euro to the upper line of the channel and the 45th degree at 1.1378/80. I’m counting on a rebound here and a double bottom at around 1.1327, as well as the dollar declining against the majors.

As of the latest quote, the rate has returned to 1.1328. The pair is trading in the middle of the blue downwards channel. This trade setup looks bad both for buying and selling. We can forget about a rise if the pair drops as far as 1.1313.

There’s an intermediate resistance at 1.1350 (22 degrees and LB). You could short the euro from here, but better to do it from 1.1370 or 1.1380. After this new session low, I’d rather not open a long position on the euro given that sales could recommence at any moment following a rise. If there are a lot of stops at 1.1320, we should prepare for a drop to 1.1313, and then to 1.1273. I’m not thinking about buying at all; better to take advantage of any rise to sell from a higher point.


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