Writen by Raghee Horner, Chief Currency Analyst, Interbank FX
The daily EUR/USD rallied to the 34 period EMA low as prices climbed steadily during Wednesday’s trading session from 1.591 to 1.3736. The details about the Greek government’s resumption of the 10 year bond auction must be tempered with longer term concerns, lack of German capital, and any comments that Trichet will make today during the ECB Press Conference at 8:30am EST. In light of that, the pullback during the Asian session back to yesterday’s pre-rally range shows that traders are taking profits.
The swing set up on the daily chart was triggered when prices reaches the major psychological level at 1.3700 and the bottom line of the 34 period EMA Wave. I define a swing short entry as an overall trend following entry however it differs from setting up momentum in that a correction of the trend is necessary rather than a break down lower through support. I feel the idea behind swing entries is that healthy trends correct. The risk in such a corrective entry is that the market direction may shift to a sideways cycle which could weaken the likelihood of the trend continuing. However near term confirmation of the downtrend can be seen in as EUR/USD prices are once again below 1.3700 and the U.S. Dollar Index is finding buying support above 80.00.
From what I see on the chart, yesterday’s price action easily broke the intraday range that the 60 minute chart had been in, however, it seems that traders are reigning in the bulls as prices are re-entering the range below 1.3700. The move higher Wednesday, I feel reflected the initial rally on quite frankly any details being released regarding the Greek Austerity plan and today’s pullback today is simply profit taking on yesterday’s move. It is a classic “buy the rumor, sell the news” reaction. The market cycle shift is also noticeable on the 60 minute as well. Consider that yesterday, even within the wide range, the 60 minute chart was in an uptrend and it’s that trend that continued as prices broke higher through 1.3670.Today prices have not only broke lower through the support of the Wave by piercing 1.3671 (which is the 34 period EMA low), but the market cycle itself has transitioned to more of a sideways cycle which would be a momentum environment. Based on this information, I feel that now many traders will look to identify the high and low of the intraday range and enter long on surges through resistance and enter short on pushed through support.
Remember that the overall trend of this market is still down as seen on the daily chart and the rejection at 1.3700, and, in my opinion, will be the line in the sand for traders who are expecting more downside from the EUR/USD. The low for today remains 1.3632.
*Please note that nothing in these blogposts by Raghee Horner is a recommendation to buy or sell currencies.
Due to volatility in the market during news announcements, trading during economic news is inherently risky. As with all major economic releases there could be significant price volatility with this announcement. Currency spreads will typically widen just before the release and will remain wide for a few minutes after. If the announcement is a shock to the consensus estimate, the price of the currency pair could gap significantly. For example, the price on the EURUSD trading at 1.2820 - 1.2822 just before release could gap up 60 pips to 1.2880 - 1.2882, without any available prices available between the price of 1.2820 and 1.2882. A Buy Stop placed before the announcement at 1.2830 would turn into a Market Order and would be filled at the prevailing price 1.2882. The same would be true with a Sell Stop.
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