Trade Idea: Selling EURUSD after big reversal

Trade: Selling EURUSD around 1.3150 - 1.3170

Stop: 1.3217 bid

Targets: 1.3055 and 1.3005

• The first trading day of the year yesterday saw a fiscal cliff deal that initially saw fresh enthusiasm for selling the USD - theoretically on the fiscal irresponsibility shown by US politicians with this deal, but really because the deal is thought to clear a cloud of uncertainty that provided a boost for risk appetite. But the ugly reversal in the USD vs. the Euro despite healthy risk appetite suggests that the USD has been oversold
• The Euro rally of late last year was at least partly due to central bank reserve managers unwinding some of their Euro under-weighting from previous fears of EU tail risks. This scramble to buy Euros may ease again now that we are in a new calendar year. As well, the spin on Greece has soured again recently
• Technically, the large bearish shooting star on the first trading day of the year sets the tone with a bearish short term outlook that could have the pair testing the 1.3000 level in the days ahead. The stop is placed just above the weekly pivot level at around 1.3215.

Trade management: If the pair trades below 1.3130 again, traders can lower stops to 1.3185 bid and if the pair trades below 1.3100, the stop can be pulled down to 1.3155. 

Risk: tomorrow features both the US employment report and the US ISM non-manufacturing survey, either of which could introduce considerable volatility in either direction.

Daily Chart:

Weekly Chart:

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