Risk aversion has subsided lately, as global stocks are doing better, oil was up over 2 bucks, and the euro had a good morning during the European session, seeing across the board improvement. There are some who have started to argue that the EUR/USD has found a bottom, for now anyways, as the EUR/USD has begun to consolidate and inch it’s way higher over the last 48 hours after achieving its lowest level since April of 2006. A almost perfect hammer (for you candlestick followers) has also formed on the daily chart lending more credit to this argument. As I’ve made mention in previous posts, sovereign names have been selling the EUR/USD for reserve diversification purposes and this will inevitably continue to weigh on the pair but off-setting this is the fact that many professional accounts and hedge funds have been taking profits off the table over the last few days. This might mean we are in for a couple of weeks where we see this pair range much like we saw in mid-February to mid-March of this year. As for now sources report offers around 1.2460, 1.2510 that continue to build and cap rally attempts in that area but a break above there could see a swift move to 1.2500. Any moves back down to the 1.2300′s and especially 1.2270′s should be met with strong support and profit taking. Some very large, “game-changing” stops seen clustered around 1.2700 from medium and long-term players.
Not a great deal of conviction out there today, it would seem, a good sign for those looking for some near-term stability in EUR/USD. I’m sticking to my prediction of a ranging market which means the use of lower timeframes and support/resistance along with pivots (today’s daily R1 capped today’s rally) and trendlines will give you the best indication of where the next near-term momentum changes are likely to materialize. I would caution all my fellow traders that the windfall of profits from the previous 2 weeks will not come as easily over the next couple of weeks. Usually whenever markets panic like that you eventually realize a bottom and then consolidate for several weeks in wide ranges before the tables turn once again both fundamentally and technically, so don’t expect to see moves as fast and as huge as we have been seeing. When currency pairs enter times like these, I lower my profit expectations quite a bit on my trades and look for more trade opportunities while also setting lower T/P’s. More trades with less profit but also less risk. You can always add onto an already winning position but don’t get greedy. Sometimes it’s not the size of your wins but the amount compared to your losses. Money Management 101: let your profits run and cut your losses short. All right, that’s all for now.
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