Selling EUR/USD on European Growth, Bank Concerns

EUR/USD

Support

1.2500 55-day moving average

1.2410 Daily Ichimoku Tenkan line

1.2330 21-day moving average

Resistance

1.2675 May 21 intraday high

1.2750 Daily trend line resistance from Dec. 2009 1.51/52 highs

1.2900 Daily Ichimoku cloud top (declines to 1.2785 by July 12)

Comments
EUR/USD has seen a corrective rebound which looks to have formed a potential 'bear flag' channel, a counter-trend consolidation pattern. The pair is also within about 100 points of a key daily down trend line that has defined EUR/USD's decline since the end of 2009. There also is the possibility that EUR/USD is forming an inverse head and shoulders pattern, possibly representing the end of the down-trend. Given the choice between the two, I'm inclined to favor the bearish scenario of the EUR eventually turning lower given the still bleak fundamental outlook for the Euro-zone. The key resistance levels above also make for a relatively limited risk set-up.

The Strategy this week will be to sell half of a short EUR/USD position at current market levels (1.2640/45) and to sell the second half at 1.2730, just below the key daily trend line, for a short average of approximately 1.2685. The stop loss will be on a daily close above the down trend line at 1.2750 (and declining) or if 1.2800 trades at any time, for a total risk of about 115 points. The take profit objective will be for 50% at the 1.2330/40 21-day mov. avg. (which is rising), and the remaining half will be kept open for a potential break below the bear flag base at 1.2250 (and rising). Stops can be adjusted lower to 1.2550 on a drop below the 1.2490/2500 level.