The EURUSD rally that was intact since December is no longer. The post-Brexit plunge below 1.1150 saw to that. Since then, EURUSD has consolidated within a 1.1000-1.1190 band but the bottom is showing signs of wear, warning of additional losses.
Last week, the European Central Bank left rates unchanged and delivered a balanced but cautious statement, expressing concerns about Brexit and slowing global growth. On Thursday, the Federal Open Market Committee may deliver a more upbeat assessment on the US economy and set the stage for a September rate hike.
A June rate hike was on the agenda, but Brexit and a wonky nonfarm payrolls report derailed the move. Since then, the payrolls report corrected itself. The two-month NFP is 150,000 and recent US data have been stronger than expected.
Last week, existing home sales posted their largest gain since 2007, housing starts were near eight-year highs, and jobless claims declined. It stands to reason that this FOMC statement will be hawkish.
The intraday EURCAD technicals are bearish while trading below 1.1020 with prior support at 1.1040 now reverting to resistance. A break of the 61.8% Fibonacci of the December-May range (1.0940) points to further losses to the 76.4% retracement level.
Management and risk description
This trade is vulnerable to weaker than expected US data this week including Durable Goods on Wednesday. Continuation of the strong earnings reports from US corporates will help keep the US dollar in demand. The stop loss will get triggered on pre-FOMC sentiment of another dovish FOMC statement.
Entry: sell EURUSD at market (1.0983).
Time horizon: four days.
EURUSD 30 minute with stop loss level shown:
Source: Saxo Bank
EURUSD one-hour with downtrend channel:
EURUSD daily with Fibonacci retracement levels and take-profit levels noted:
EURUSD five-year daily with moving averages:
Source: Saxo Bank
— Edited by Michael McKenna
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