Technical Analysis

EUR/USD - Top Trade Idea For January 5th and 6th, 2014

Will 2014 be a year to look forward to for ample trading opportunities as many experts have previously hinted or will we be surprised by a Merry Crisis and a Happy New Fear instead which may topple our game plan?

The break of the early days of the new year have witnessed to some shifts in  trader’s sentiments, presumably glittered by the glimpse of hope that may have transpired from what was broadcasted in the news recently, particularly about Greece’s improved performances and the euro zone in general. However, the real question is whether the current bullishness particularly for the EUR/USD is simply a replication act of ‘irrational exuberance’ by majority of investors?  For example, I do recall Bradley Gilbert’s comment as he elaborated in his article on YTL magazine about how a correlation seemed to exist between the Spanish IBEX 35 and the Euro. It was mentioned that, by closely monitoring the two instruments could pose as a possible key to the future of Europe. How much is this true and should we traders be relying on all that have been said and written by specialists in the industry and how much are we suppose take in or filter out to have it applied in our practical trading?

Let’s use some senses or others call it logic, based on previous and current economic conditions; since November last year till date, we could agree that the euro zone’s inflation rate was lower than expected which may have influenced the ECB’s decision to cut rates as what happened in November where a severe drop from 1.35 to 1.33, the moment ECB announced it. Without the shadow of a doubt, statistically much has been made of the Eurozone’s recovery until today since the numbers were better than expected but this has been largely contributed by net exports. To support my assumptions that more efforts will be made in lowering the value of the euro, president Draghi as far as I could recall made it clear that a further rate reduction is a possibility and that the ECB is prepared for a negative deposit rate. With further stimulus expected for the euro zone while the US is seen to steadily exit its’ monetary easing program, this would most likely be the key factor for the depreciation of the Euro and appreciation of the US Dollar.

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From a technical or Harmonic Pattern’s perspective seen above, the analysis for the EUR/USD on the daily chart is represented by a bearish ‘W’ pattern which signifies a fall of the euro once prices completes at the D point. As of the market close on Friday, the Euro was trading at the 1.3592 level but expected to travel rather choppily upwards along the channel marked as seen above when markets open on Monday. I would suggest a least risky sell entry once prices have progressed above the B point at which is roughly above the 1.3720 area. However, many would say that it’s  a rather long 200 pips worth wait so if that’s is the case, you are most welcomed to scale down to lower time frames and begin to strategize accordingly. If based on the 4hr chart, a pattern most commonly known as the ‘Shark Pattern’ is at play which signals a sell entry for the medium term with entry suggestion at the 1.3570 level while the proposed TP be at the 1.3530 area and SL based on either the 1:1 or 1:2 risk reward ratio. Before ending my analysis for the EUR/USD, I would like to suggest traders to be particularly aware of keynote speeches as well as economic data releases particularly in relation to bank rates central banks if any.

Happy Pipping !

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