Short-term Trading Idea FX EUR/USD – Bear Speculation: Bear Takeover

Trading opportunities for currency pair: ECB representative Ewald Nowotny pushed the eurobulls into closing long positions. It’s highly likely that before the ECB’s Thursday meeting, we’ll see the downward movement on the euro resuming. I’ve picked out two price levels: 1.1250 and 1.1086 (by middle of November), with 1.0290 over the medium term.

Background

The last idea I made on the EUR/USD came out on 21st September. For you to get an idea of exactly what the situation is, I’ve gone through the events which have affected the euro below.

Due to a crashing of world stock indices, on 24th August the euro/dollar renewed to 1.1712. When the situation stabilised, the euro/dollar returned to 1.1086. Due to expectations that the Fed will refuse to put up the US base rate, the euro again gained ground on the USD. On 17th September the euro/dollar rose to 1.1459 and on 18th September it lost all of its gains.

In the second half of Friday the USD was up after the ECB’s Benoît Cœuré and the BoE’s Andrew Haldane made speeches. Cœuré announced that the ECB needs to be prepared to extend its QE program and Haldane said that the next move for the UK’s interest rate may be for it to be reduced and not for it to be increased.

As a result, the daily saw an up-turned candle formation form. I expected a break in the trend line and a fall of the euro to 1.1086. The line was broken and the fall stopped at 1.1104. The sellers fell 18 points short of the target.

Current situation

The price rebounded from the daily LB on 23rd September. The euro started to be bought due to expectations of the Fed refusing to up their rates this year. The euro/dollar returned to the 1.1439-1.1535 resistance zone for 16 days.

On Thursday, 15th October, ECB representative, Ewald Nowotny stopped the euro in its tracks at 1.1494. The currency was up against the dollar until he announced that the regulator should undertake additional measures to counter the lack of inflation.

What’s interesting at the moment?

On 18th September the euro was turned around by Cœuré and on 15th October it was turned around by Nowotny. Similar upturned candle formations have appeared at the 1.1439-1.1535 resistance zone (bear takeover). To understand the technical picture for the EUR/USD, I’ve put two graphs in the review: a daily and a monthly.

We have a 16-day euro growth and a bear takeover on the daily. Thursday’s minimum has been broken. The ECB meeting on Thursday will be accompanied by the usual speech from Mario Draghi. In the current conditions, I’m expecting a fall of the euro to 1.1250. If the ECB extends QE, more likely than anything we’ll see a new dollar rally against the euro.

We can see on the daily that the sellers need to break a few levels: 1.1280, 1.1250 and 1.1085. A break in the last level will renew the euro's fall along the trend which takes its beginnings from a May 2014 1.3992 maximum.

From a 1.0461 minimum, a correction which lasts for seven months is forming on the weekly. A close of the month below 1.1175 will see the forming of an upturned candle.The oscillator stochastic has flipped downwards. A break in 1.1085 will see the euro's fall resume with new gusto. Whether we see a renewal of 1.0461 will depend on the ECB's actions on Thursday.