EUR/USD medium-term overview: Risk-reward favours buying deep dips

By: Sean Lee

     I know it’s a bit of a cop-out, but in reality its almost impossible to be bullish on either the EUR or the USD, so it comes squarely down to price and short-term sentiment. A look at the weekly chart shows that the fall from 1.4940 to 1.2035 has retraced almost exactly 38.2% to 1.3145 and then stalled. So its possible that we have already entered the next phase of a medium-term down-move. But it’s also possible that we have only seen the first leg of the retracement and that we soon see a ‘C’ wave which takes us at least to 1.3485?

Short-term sentiment is currently bearish and the market isn’t showing much ability to rally, so it looks like we will see further losses very soon. I would look to buy a deep and exhaustive dip towards the 61.8% retracement of 1.2035/1.3140 which comes in near 1.2475. If this level holds, then we have the possibility of a 10 big figure rally. If it breaks, then plenty of bulls will be bailing ship and one could even try a stop-and-reverse strategy, with tight trailing stops of course.

Short-term traders should also watch out for a weekly close below 1.2740 (prior highs and 38.2% 1.2035/1.3140); if this occurs then sentiment will certainly turn negative for quite a few sessions.