Short term
Trade view / 21 August 2015 at 0:40 GMT

Euro rally has further upside potential for EURUSD

Managing Director / Technical Research Limited
New Zealand
Instrument: EURUSD
Price target:
Market price:
Background

The EUR looks to have been the primary beneficiary from the unwinding of long USD positions after the tepid inflation number and dovish FOMC minutes yesterday. On the face of it, it looks due to short covering, even though the arguments in favour of the euro as a funding vehicle for carry trades are compelling. 

See my discussion of this topic here: US markets spark EUR traders into action. We will get an indication later today on whether the euro can stand on its own two feet when the flash PMIs for France, Germany and the Eurozone are released. 

After last week’s slightly disappointing GDP number, expectations aren’t high but the rally in EURUSD would gain momentum on a positive surprise. On the other side of the coin, a weak August Manufacturing PMI out of the US would add to the gloom descending on the dollar. 

Management and risk description

The euro has recovered well this week (as anticipated) and there is more upside ahead for EURUSD.

While holding support at 1.1200/1.1185 (and closing above this in New York at the close of trading later today) the EUR displays a completed two-month Inverse Head and Shoulders structure, with an upside projection toward 1.1640 (refer daily chart below). 

Of course, multi-month Symmetrical Triangle resistance at the 1.1380 level must be surpassed in the meantime.

Today, support lies at 1.1220/1.1185 to yield rally onto 1.1280 and then key 1.1350/1.1380 resistance.

I have outlined a trade (below) to capitalise upon this developing situation.

Parameters

Entry: for today: buying EURUSD at market (currently trading the 1.1230).

Stop: 1.1173, initially.

Target: 1.1365.

Time horizon: allow a few days for target to be met.

EURUSD daily chart (click to expand)
EURUSD daily chart
 Source: ThomsonReuters

EURUSD weekly chart (click to expand)
EURUSD weekly chart
 Source: ThomsonReuters. Create your own charts with SaxoTrader; click here to learn more 

— Edited by Gayle Bryant

For more on forex click here

Non-independent investment research disclaimer applies. Read more
3y
NeilLikesa NeilLikesa
This comment has been redacted
3y
MavNZ MavNZ
Hi Max ,this target can't be happen on this week .. have great afternnon .
3y
Haradasun Haradasun
great call Max ! Already your 1.1280 target reached and I've made money, thanks.
3y
Vladlen Golubtsov Vladlen Golubtsov
excellent weekly chart!
3y
Max McKegg Max McKegg
Welcome to contact me for further fx advice. Email me at: max@enterprise.net.nz

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