The euro remains trapped in a quiet trading over the past 10-days and appears finally ready to breakout of this tiresome range as concerns grow that falling prices for European goods will give the European Central Bank (ECB) support to act at its next meeting on March 6th. At the Group of 20 meeting in Sydney yesterday, ECB President Mario Draghi queued up the potential for action by the central bank and appears he will have a proactive stance on fighting deflation if the data supports it.
Earlier this morning, the euro rallied across the board and just missed making a new monthly high against the U.S. dollar after three solid statistical releases regarding German IFO figures. Business climate had its highest reading since July 2011 and both current conditions and business expectations had solid improvements.
The bearish butterfly I identified on February 13th could still possibly form and now currently has confluence with a bearish butterfly pattern on the 60-minute chart. Both charts target a key reversal at around the psychological 1.3800 level. If, however there is strong breakout above 1.3850, there could be a strong case for a bullish rally to take out several stops above the 1.4000 level.
The trade: Sell EUR/USD at 1.3795, with a stop loss at 1.3835 and a take profit at 1.3675. The Risk/Reward Ratio is 1: 3
Edward J. Moya
WorldWideMarkets Online Trading