Chart Of The Day: Euro Eyes A Return To $1.2000

After it was roughed up a bit last week, the ‘s trajectory is currently higher, at least in the short- to mid-term.

Fundamentally, traders—relieved after Italy’s nationalist parties finally formed a coalition late last week—bid up the single currency, suddenly making it a buying opportunity, at least for now. Over the longer term, however, an Italian government ruled by euroskeptics could be heading down a path leading to a second member nation leaving the EU, with potentially serious ramifications for the European Union’s financial system.

EUR/USD Weekly 2014-2018

EUR/USD Weekly 2014-2018

The euro relief buying coincided with the support of the 1.1600 price area, which itself confirmed the November 2017 support, after market psychology reversed a major resistance at that level, in place since February 2015.

It also happened to dip below and close above the midterm uptrend line since the beginning of 2017. The 200-week MA reveals the importance of that price level, and should the 100-week MA (blue), which has been climbing since mid-2017 cross above it, a bullish signal would be triggered, following the Golden Cross that’s already been activated, after the 50-week MA crossed above the 200-week MA earlier in the year. Finally, a high wave candle had been formed, suggesting that the bears are second-guessing themselves.

Trading Strategies – Long Position Setup

Conservative traders would sit this out and instead wait for a new peak to be formed above the 1.2557 level, posted in February, to confirm the uptrend is intact.

Moderate traders may risk a long position, should the 100-week MA cross above the 200-week MA. Alternatively, a pullback toward the 1.1600 price level would provide a risk-reward ratio too good to pass up, even before any further trend confirmation.

Aggressive traders may enter a position now, provided they can afford a stop-loss beneath the presumed support of the May low at the 1.1500 level. Otherwise, they should wait for a dip, till they can afford that stop-loss.

Equity Management

Since this is a weekly chart and a medium-term position lasting weeks, traders must exercise patience, but good things come to those who wait.

Trade Example

  • Entry: 1.1610
  • Stop-loss: 1.1490
  • Risk: 120 pips
  • Target: 1.2090 (September peak may provide resistance, such as if forming a H&S top)
  • Reward: 480 pips

Risk-Reward Ratio: 1:4

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