Germany’s Purchasing Managers Index for manufacturing, a forward looking measure of economic sentiment, came in at 48.9 for March, unexpectedly below February’s 50.3 print. This reduced enthusiasm for the Euro, which wasn’t all that robust in any case, given that the Cyprus imbroglio appears to be getting more, rather than less, complicated. I was hoping to see, within the shortest timeframe that I use (the hourly chart), EUR/USD retrace back to 1.30, anticipating a move of about a big figure lower from there, to roughly 1.29.
In the event, the high reached was 1.2977, although the move lower from there extended to 1.2843. In the hourly timeframe, unless the low is taken out, I don’t see much to do at the moment, since as I’ve mentioned I don’t see a lot of catalysts that are likely to propel EUR/USD higher. An exception would be a painless resolution to Cyprus’ problems; “never say never”, I’m told, but that seems pretty unlikely. On the daily chart, the downtrend continues to look pretty orderly to me. Given where the moving averages and Keltner Channels are, a move much beyond 1.3175 appears unlikely, making something in that area a reasonable place to think about putting on a short, with a stop not far above 1.32 and an initial profit objective just north of 1.30, say 1.3010.
If a retracement only extends as far as 1.32, or below, I would actually expect to see the 1.2843 low at least retested, which would of course represent a nice gain. Still, the expected doesn’t always occur, and I would never turn up my nose at a 1+% gain (that is, from 1.3175 to the initial 1.3010 target). The key risk would be a positive headline out of Cyprus, which of course could happen, even it it subsequently proved to be bogus.
My sense is that EUR/USD positions aren’t hugely short as yet, and there should be longer term investors looking to sell into any strength, but a short covering rally that stops the position out isn’t outside the realm of possibility. Were that to occur, I would be inclined to leave a sell stop just below 1.3175, looking to reestablish the short position if that level was breached again. The genie was let out of the lamp with the imposition of a tax on deposits in Cyprus, and I don’t think that the market is done with the Euro quite yet.
Still, Todd in his courses, and in his daily videos, constantly hammers home the necessity of patience, and waiting for the setups to take shape. If 1.2843 breaks first, establishing a new short term low, so be it; there will be new opportunities to sell a bounce. It is really easy to get chopped to death in currencies for no good reason. There will always be opportunities, but they are only available to the people who have the money left to take advantage of them when they occur.
Best of luck!
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