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EUR/USD Ascending Channel Provides Swing Trading Opportunity

EUR/USD Ascending Channel Provides Swing Trading Opportunity

2011-02-17 21:52:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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After declining for the better part of the last two months of 2010, 2011 has been quite beneficial for the Euro, as it has appreciated 1.6 percent against the U.S. Dollar; in fact, the Euro has gained against every currency but for the British Pound. Nonetheless, February has marked a correction for the EUR/USD pair, with the Greenback gaining 0.65 percent. Now that the EUR/USD pair is at the top of its descending channel formed thus far this month, while sitting in the middle of its larger ascending channel dating back to mid-December, there appears to be significant room for the EUR/USD pair to swing lower as part of its corrective wave.

Levels to Watch:

-Range Top: 1.3990 (Trend)

-Range Bottom: 1.3185 (Trend)

2011-02.17_EDITOR_body_Picture_4.png, EUR/USD Ascending Channel Provides Swing Trading Opportunity

Charts created using Strategy Trader– Prepared by Christopher Vecchio

Suggested Strategy

  • Short: Place an entry at 1.3637 (20-SMA)
  • Stop: Set the stop to 1.3735 (98-pip risk, 61.8 Fibo)
  • Target: The first target is 1.3539 (100-SMA, move up stop to 1.3567), second target is 1.3399 (38.2 Fibo)
  • Timeframe:5 to 10 days

Trading Tip The EUR/USD pair has been swing trading in a clear ascending channel over the past twelve weeks, carving out a near-1000-pip range over said time frame. Now that the pair is sitting just below the regression trend, there is significant room for the EUR/USD pair to continue within its range. With momentum to the upside right now, it appears that the EUR/USD pair will push further north to test its 20-SMA and potentially its 61.8 Fibo at 1.3735 before reversing course and heading back towards the range bottom.

Event Risk for the Euro-zone and the United States

While the calendar looks empty for both the Euro-zone and the United States over the next few days, a steady stream of significant data will hit the newswires starting Tuesday. Accordingly, event risk remains limited over the four days, but expect the psychologically significant moving averages to be tested throughout next week.

Euro-zone – With no data on the docket until Monday, event risk from the Euro-zone is extremely limited. Fairly significant Purchasing Managers Index data is due early in the session on Monday, but it is unlikely to push the EUR/USD pair outside of its range.

United States – No data is due until Tuesday, as U.S. markets are closed on Monday for a federal holiday. However, major event risk is on the docket for Tuesday, with Consumer Confidence and the Richmond Fed. Manufacturing Index expected. A continuation of the recent trend of improving underlying economic conditions could help the Greenback push towards the lower part of the EUR/USD channel.

Data for February 20 to February 25

Data for February 20 to February 25

Date

Euro-zone Economic Data

Date

United States Economic Data

Feb 22

PMI Composite (FEB A)

Feb 22

S&P/CS Home Price Index (DEC)

Feb 22

PMI Manufacturing (FEB A)

Feb 22

Consumer Confidence (FEB)

Feb 22

PMI Services (FEB A)

Feb 22

Richmond Fed. Manufact. Index (FEB)

Written by Christopher Vecchio, DailyFX Research.

To contact the author of this report, please send inquiries to: instructor@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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