Chart Of The Day: EUR/GBP's Rise And Fall...And Rise?
Investing.com | Jun 08, 2017 08:01AM ET
by Pinchas Cohen
ECB President Mario Draghi has been very clear about his opinion and policy intention regarding a rate hike—no change. Disappointed investors are looking for something to get excited about.
They're hoping for guidance. After all, Europe has grabbed the reigns of the global economic recovery.
So the big question for the ECB (and other central banks as well) now is, 'tell us when you’ll start thinking about climbing down from the mountain of the biggest monetary stimulus in the history of mankind.' The BOJ already caved in to the mounting pressure and is beginning to think about thinking about it.
What's Draghi’s response to mounting requests for guidance regarding ECB stimulus rollbacks? He'll provide lower inflation projections.
As a result, the euro is falling, even against the pound sterling, which has its own heaping pile of risk on today's election and a falling-out with EU Brexit negotiators.
h3 /h3 h3 EUR's Rise...And Fall/h3From the low of 0.8383 on May 10, the euro has been gaining in value relative to the pound. This gain plotted a trendline on the chart, above, as both new peaks and new troughs achieved greater heights than their predecessors.
However, that bullish succession ended on June 4 with a high of 0.8773, making the entire move a gain of 4.64%. The following peak on June 6 was lower, at 0.8755. If a lower peak wasn’t enough, the next price decline broke the line connecting the two previous lows, at 0.8705.
This pattern created a H&S top, and the line connecting the lows was its neckline. Price returned to retest the broken neckline’s resistance yesterday at noon in New York, but the neckline held, sending the price down half-a-percent where it remained until 3:00AM EDT today.
Keep in mind that the price may correct upward before resuming the reversal pattern’s implications. See the stochastic oscillator at the bottom of the chart, in purple, which measures momentum. It’s oversold and turning. Conservative traders wait for the momentum to at least even out, if not get oversold, before they move in for a short.
Target price: The height of the pattern suggests a 685-pip target price, bringing the price to 0.8635. However, consider the May 30 support, with a low of 0.8655.
h3 /h3 h3 Bearish Upside Trading Strategies:/h3- Ultra-Conservative: Stay out of the market today.
- Highly Conservative: Only trades the amazing bargains. That would be a short after a return to the neckline, whose angle may coincide with the return move’s high of 0.8716
- Conservative: A short after a return to the top of today’s trading range at 86.90.
- Moderate: Would short by 0.8650, resistance of the bottom of much today's trading.
- Aggressive: What are you waiting for?!
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- Conservative: Short after a downside breakout below the congestion low of 0.8670 at 3:00 AM, a second close at least 0.10% below.
- Moderate: Short after a second close below the low of 0.8670.
- Aggressive: Short after a single close below the low of 0.8670
Clarification: This target price and trading strategies are according to the supply-demand balance of power as of now. However, unpredictable events may very well shift the balance.
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