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ECB Versus the Market for EURUSD

ECB Versus the Market for EURUSD

2014-05-01 03:28:00
John Kicklighter, Chief Strategist

There is a stand off between the market's quiet bid on the Euro and the ECB's commitment to keep the currency from curbing the region's growth. While not as clear as the SNB's vow to keep EURCHF above 1.2000, I think the threats the central bank has made against the EURUSD every time it reaches for 1.4000 is as distinct as we can get on a major of its girth.

That is the foundation behind the EURUSD short I took this past session. Having entered at 1.3870, I have put a 100 pip stop on the trade to allow for volatility should some shocks play through on the tech resistance (a heavy round of confluence between 1.3900 and 1.4000). But the real threat is the ECB. If they are willing to push the currency down using monetary policy, bulls will shy away from anything more than a quick jump. As with most trades, my first target equals risk (100 pips) and the second target will be the bottom of the range.

See my video on the EURUSD strategy here.

As for the other trades I am watching, the trio of EURJPY, GBPJPY and CHFJPY carry the most opportunity with large wedges leaning towards breakouts. They are leaning towards a bullish breakout, but it is risk aversion that carries the greatest potential generally speaking. Therefore, my criteria for a bullish trade is high, but I would more readily trading a bearish break.

For my existing trades, I am back in on the GBPAUD short at 1.8160 (with 150 pip stop) trading the return to the head-and-shoulders neckline and given the fundamental imbalance between UK and Australia rate expectations potential. The same technical and fundamental considerations exist for my EURAUD short.

My long-term USDCHF and AUDNZD long positions are also being carried over. The first is in the red and the second well into the green. I'm looking at long-term considerations like the SNB's influence on EURCHF and the changing rate forecast backdrop for AUDNZD. I will let these play out over a longer period of time.

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