EUR/USD began 2015 in the midst of a strong selloff that has been firmly in place since price respected the 1.40 handle in May of 2014. Last week, the euro fell below the $1.05 level for the first time in 12 years. The bearish bias remains firmly in place, but with the recent consolidation that has taken place over the past few trading sessions, we may see slight recovery here.
Price action on the 240-minute EUR/USD chart shows that if the recent rally continues to the 1.0740 zone, we may see a bearish butterfly pattern form and key trendline resistance trigger a resumption of the downward move. Point D may be confirmed by both the 261.8% Fibonacci expansion of the B to C move and the 127.2% Fibonacci expansion level of the X to A decline.
Even if we see this tentative rebound take out the 1.0750 – 1.08 region, the bearish run is far from over. Key downside targets include the 1.0250 level, followed by 1.0050.
The trade: Sell EUR/USD 1.0740, with a stop loss at 1.0810 and take profit at 1.06. The risk/reward ratio is 1:2
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading