A plethora of important economic data, a monetary policy decision, and press conferences all contributed to this morning’s volatile price action for Eurodollar. The immediate reaction was modest euro weakness that could not break below the 1.10 handle.
The key headlines was the announcement of sovereign bond purchases of 60 billion euros to begin on Monday, March 9th. More importantly, the ECB will buy continue to buy assets until we see inflation. This plan of purchases will carry out until September 2016, but may be extended if the data warrants it.
Prior to the press conference, EUR/USD did temporarily recapture the 1.11 handle after US Weekly Jobless claims surged much higher than estimates. Claims rose to 320,000, driving the four-week average to 305,000. If we continue to see weaker job data out of the U.S., expectations for the Fed June rate hike will be pushed back and the dollar may pare its recent gains.
For downward momentum to resume, EUR/USD needs to break the 1.10 handle. Price is resting at critical support zone and if we do see price recapture 1.1060, we could see an attempt to once again recapture the 1.1100 and possible form a short-term double top pattern. Downside targets include 1.0826, which is the 161.8% Fibonacci expansion level of the January low to February high move.
In the event we see a major reversal, critical resistance will come from the 1.1520 level which is where the 50-day SMA is currently trading.
The trade: Sell EUR/USD 1.0975, with a stop loss at 1.1025 and take profit at 1.0830. The risk/reward ratio is around 1:3
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading