Good Morning, Friends; here’s hoping that everyone’s trading is going well. There are an unusual number of cross-currents in EUR/USD at the moment. There is an ECB meeting on Thursday, at which Pres. Draghi is widely expected to comment on the undesirability of additional EUR/USD strength. In addition, a number of market players anticipate that some easing of Eurozone interest rates will occur. This is normally a negative for a currency. In addition, the U.S. Treasury’s semi-annual report on currencies to Congress took a time out from assailing China, instead sharply criticizingÂ Germany’s large current account surplus.
This isn’t noise, exactly. The largest institutional players in the FX space spend their waking hours thinking about the ramifications of policy for exchange rates. The result of their thinking – along with that of other market participants, of course – is in the charts, and a quick look indicates that EUR/USD has already beaten a retreat (roughly, 2.6%)Â from the recent high of 1.3822, set not long ago on October 24.
I don’t know of any good way to handicap what the ECB will or won’t do, and I don’t think that the U.S. Treasury’s complaints, even if amplified by Congress, will have much impact on Germany’s behavior. The Eurozone continues to have political and economic issues, but conditions seem to be gradually improving. Under the circumstances, initiating a long EUR/USD position here, with the intention of adding to it on a further dip to 1.3420,Â strikes me as having a decentÂ risk/reward ratio. I’d be looking to at least lighten up around 1.3550, and would be inclined to reassess – that is, have a stop in place -Â that would be triggeredÂ byÂ a break below 1.3380.
Please keep in mind that Dr. Draghi’s press conference will begin at 2:30 CET, which is 8:30 EST. The potential for some rapid price movements will certainly exist.
Best of luck!
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