Talking Points

  • EUR sentiment back at contrarian negative extremes
  • Counter-trend recovery looming?

Unfamiliar with Gann Square Root Relationships? Learn more about them HERE.

EUR/USD has started the year where it left off in 2014 with exchange rate coming under further pressure right from the start of trading. Conviction is high that the downtrend will continue and it is very difficult to find any reasons why the euro could rally - even in the short -term. This type of thinking always makes us a little nervous and with the Daily Sentiment Index (DSI) falling to just 6% Euro bulls on Wednesday (and after today’s move likely to fall even further this afternoon) we can’t help but wonder if a counter-trend rally is in store in the not too distant future. With the exception of September, the euro has responded rather well to the contrarian signal of single digit DSI levels over the past few months as the rallies in October, November and December were all presaged by similar levels of extreme negative sentiment. Does the current level of negative euro sentiment guarantee that a counter-trend rally will occur? Of course not, but it does isolate one of the most important conditions. With a fairly important cyclical turn window eyed next week, we like the reward-to-risk of holding short-term euro longs under 1.2000.

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EUR/USD Chart: January 2, 2014

"Everybody" Hates The Euro Again

Charts Created using Marketscope – Prepared by Kristian Kerr

Key Event Risk in the Sessions Ahead:

"Everybody" Hates The Euro Again

LEVELS TO WATCH

Resistance: 1.2115(Gann), 1.2135 (Fibonacci)

Support: 1.1995 (Gann), 1.1875 (2010 Low)

Strategy: Buy EUR/USD

Entry: Buy EUR/USD at 1.1995

Stop: Daily close under 1.1965

Target: 1.2135

--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com

To contact Kristian, e-mail instructor@dailyfx.com. Follow me on Twitter @KKerrFX.