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Scalping EURUSD Reversal– EURCAD Proximity To Pivots Too Good To Pass

By , Currency Strategist
14 March 2012 19:58 GMT

With the pickup in volatility over the past few days, we thought it prudent to offer these scalp setups on the EURUSD and the EURCAD. While the single currency has been called lower for months, only now does the technical setup offer ideal scalp opportunities with yesterday’s FOMC statement providing further support for the dollar as calls for QE quickly subside. The proximity to our pivot levels (points at which our directional bias is negated) on both of these setups offers favorable risk to reward ratios as we attempt to play further weakness in the EURUSD and a correctional rebound in the EURCAD.

EURUSD Daily Chart

Scalping_EURUSD_Reversal_EURCAD_Proximity_To_Pivots_Too_Good_To_Pass_body_Picture_4.png, Scalping EURUSD Reversal– EURCAD Proximity To Pivots Too Good To Pass

A daily chart of the euro shows the single currency breaking below the 50-day moving average and Fibonacci support at the 50% retracement taken from the January 16th advance at 1.3054. This completes a head and shoulders pattern and suggests a key reversal for the euro. Note that the daily relative strength index has yet to break below RSI support dating back to January 19th and a close below this trendline offers further conviction on our directional bias.

EURUSD Scalp Chart

Scalping_EURUSD_Reversal_EURCAD_Proximity_To_Pivots_Too_Good_To_Pass_body_Picture_3.png, Scalping EURUSD Reversal– EURCAD Proximity To Pivots Too Good To Pass

The euro has continued to trade within the confines of a descending channel formation dating back to the March 8th highs with the single currency resting on interim support at 1.3010 ahead of the close in New York. A break below this level puts our setup into play with subsequent support targets eyed at the February low at 1.2973 and would represent at 100% retracement of the February 16th advanced. As such, we reserve this level as our bottom limit with a break here eying subsequent floors at 1.2950, 1.2930, and 1.2905. Stronger support is seen lower at 1.2875.

Interim resistance stands at 1.3050 backed by the 78.6% retracement at 1.3080 and channel resistance. A breach above out topside limit at 1.3125 negates our interim bias with such a scenario eyeing topside targets at the 61.58% retracement at 1.3170, the 1.32-figure and the 50% retracement at 1.3230. A 30min average true range of 20.9 yields profit targets of 17-19 pips depending on entry. Should ATR pull back dramatically, adjust profit targets as needed to ensure more feasible scalps.

*Note that the scalp will not be active until a break below 1.3010 or a rebound off 1.3050 or subsequent resistance level with RSI conviction. We will remain flexible with our bias with a move passed our topside limit at 1.3125 eyeing topside targets.

Key Thresholds

Entry/Exit Targets

Timeframe

Level

Significance

Resistance 1 Target

30min

1.3050

Soft Resistance

Resistance 2 Target

30min

1.3080

78.6% Fib Retracement

Topside Limit

30min

1.3125

Soft Resistance

Break-Target

30min

1.3170

61.8% Fib Retracement

Extended Break- Target

30min

1.3200

Soft resistance

Support 1 Target

30min

1.3010

Soft Support

Bottom Limit

30min

1.2973

100% Fib Retracement (February Low)

Break-Target 1

30min

1.2950

Soft Support

Break-Target 2

30min

1.2930

Soft Support

Break-Target 3

30min

1.2905

Soft Support

Extended Break-Target

30min

1.2875

Strong Support

Average True Range

30min

20.9

Profit Targets 17-19 pips

EURCAD Daily Chart

Scalping_EURUSD_Reversal_EURCAD_Proximity_To_Pivots_Too_Good_To_Pass_body_Picture_2.png, Scalping EURUSD Reversal– EURCAD Proximity To Pivots Too Good To Pass

The daily EURCAD chart highlights key support at the January lows at 1.2873 and we reserve this level as our bottom limit with a break below risking substantial losses for the euro. Such a scenario eyes subsequent daily targets at the 2011 low at 1.2770 and the 1.27-figure. Although our medium-term bias on the pair remains weighted to the downside, the recent drawdown offers opportunities to scalp a corrective pullback off he January lows before heading lower. From a fundamental standpoint, the loonie has remained rather resilient in the face of broad-based dollar strength and pressure on the commodity bloc. Still, should the loonie begin to catch up to its counterparts, look for the EURCAD pair to move higher in the interim.

EURCAD Scalp Chart

Scalping_EURUSD_Reversal_EURCAD_Proximity_To_Pivots_Too_Good_To_Pass_body_Picture_1.png, Scalping EURUSD Reversal– EURCAD Proximity To Pivots Too Good To Pass

The EURCAD scalp setup highlights clear RSI divergence with interim resistance seen at the 23.6% Fibonacci extension taken from the March 2nd and the overnight lows at 1.2935 backed by the confluence of trendline resistance dating back to March 8th and the 38.2% extension at 1.2960. Subsequent topside targets are held at the 50% extension at 1.2983 and our topside limit at the 61.8% extension just above the 1.30-figure. A breach here offers further conviction on our directional bias with extended target eyed at the 78.6% extension at 1.3035 and trendline resistance dating back to February 27th.

Interim support rests with the New York session lows at 1.2892 with our bottom limit held just below at the 2012 lows at 1.2873. A break below this level negates our short-term bias with such a scenario eyeing subsequent floors at 1.2830 and the 2011 lows at 1.2770. A 30min average true range of 20.5 yields profit targets of 16-18 pips depending on entry. Should ATR pull back dramatically, adjust profit targets as needed to ensure more feasible scalps.

*Note that the scalp will not be active until a break above 1.2935 or a rebound off 1.2892 or subsequent support level with RSI conviction. We will remain flexible with our bias with a move below our bottom limit at 1.2873 eyeing downside targets.

Key Thresholds

Entry/Exit Targets

Timeframe

Level

Significance

Resistance 1 Target

30min

1.2935

23.6% Fibonacci Ext

Resistance 2 Target

30min

1.2960

38.2% Fibonacci Ext

Resistance 3 Target

30min

1.2983

50% Fibonacci Ext

Topside Limit

30min

1.3004

61.8% Fibonacci Ext

Break-Target

30min

1.3035

78.6% Fibonacci Ext

Extended Break- Target

30min

-

Trendline Resistance Dating 2/27

Support 1 Target

30min

1.2892

Intraday Low

Bottom Limit

30min

1.2873

2012 Low

Break-Target

30min

1.2830

Soft Support

Extended Break- Target

30min

1.2770

2011 Low

Average True Range

30min

20.50

Profit Targets 16-18 pips

---Written by Michael Boutros, Currency Strategist with DailyFX.com

Join Michael on Tuesday morning for a Live Scalping Webinar at 1230GMT (8:30ET) to cover these scalps and more.

To contact Michael email mboutros@dailyfx.com or follow him on Twitter @MBForex

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14 March 2012 19:58 GMT