Chart Of The Day: Euro Rides Multiple Tailwinds
Pinchas Cohen | Sep 13, 2022 07:44
As the stars aligned, the euro climbed for the fourth day out of five to near a four-week high.h2 Monetary Policy Decision/h2
The 25 members of the governing council of the European Central Bank (ECB) unanimously decided to raise interest rates by 75 basis points (bp) at its last meeting. The decision lifted the rate from zero to 0.75%—its highest level since 2011. ECB President Christine Lagarde said there would be "several" more increases.
h2 Monetary Policy Rhetoric/h2Joachim Nagel, president of the Bundesbank, losses in Ukraine may be the catalyst for a reversal in the war momentum. If that scenario plays out, the euro may strengthen, after being the most liquid short since the Russian invasion, weighing on the single currency—already at an interest rate differential disadvantage—and pushing it towards parity with the dollar.
However, the supply-demand balance warns of being long just yet.
Yesterday the euro was up 1.6%, but still well off its highs despite the expectation of tempering U.S. inflation and recent hawkish comments from the ECB.
Moreover, the price stopped precisely at the top of its falling channel. Today's advance has not even neared yesterday's high, underscoring the resistance. Above that, broken support turned resistant.
h2 Trading Strategies/h2Conservative traders should wait for a long red candle for added confirmation of consistent supply. Then, they should wait for the price to retest that resistance before risking a short position.
Moderate traders would be content with the long red candle, provided they can withstand the potential resistance retest.
Aggressive traders could short now, taking advantage of the price proximity to the channel top and yesterday's high.
Trade Sample - Aggressive Short
- Entry: 1.020
- Stop-Loss: 1.030
- Risk: 100 pips
- Target: 1.00
- Reward: 300 pips
- Risk-Reward Ratio: 1:3
Author Note: I am not in the business of fortune telling. I am only presenting you with my interpretation of technical analysis. The discipline is not magic but is a product of statistical studies. There is no way of knowing whether supply and demand will follow the same behavior this time. Trading success is measured by overall results, not on an individual basis.
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