EUR/USD:
The EUR is sputtering once again after failing twice to gain momentum after breaching 1.50. We are closing in on some very pivotal handles on the EUR. Moving Averages are important not only because what they represent but also because they are very closely monitored by forex traders. The implication of investors all buying or selling based on a particular occurrence is that price will move substantially, such that significant PNL can be generated.
On the Chart above 4 technical points need to be highlighted. 1) The EUR has not had a single candle appear below the 50 day MA since April 22nd, 2009. As we have mentioned many times before the 50 SMA has acted as support for the EUR. 2) The current EUR Spot today sits a mere 150+ pips from the 50 SMA. 3) The EUR is in the process of completing a double top which may signal a near term reversal. 4) A slightly lower high was just completed as the EUR failed to break 1.5063 set back on October 26th .
The following price action scenarios would prompt us to enter a EUR Short. In order to enter a Short EUR position we need to see a complete candle below the 50 SMA. We would increase the Short EUR position if price closes below 1.4725 which would be a lower low. Each of these price action moves would be the first phase of potential near term EUR weakness.
As for opening a Long position, we would consider opening another Long EUR position as price approaches the 50 SMA. The reason behind this logic is simple. Price has bounced off the 50 SMA over 15 times since April and fundamentally speaking there is currently no change in market dynamic to suggest the Dollar is rebounding. Rather, current EUR weakness is due to monthly cyclical ebbs and flows, or supply and demand. If price approaches the 50 SMA statistically speaking we expect the same occurrence of support at the 50 SMA to hold again. If we are incorrect in our assumption then you exit the trade with a Stop Loss just south of the the 50 SMA.