Today’s Trading Edge: EUR/USD downside risks grows as ECB action expected

Yesterday, the euro’s three-week rally fell six pips shy of the critical resistance 1.15 handle. Weakness may continue now as expectations grow for European policymakers to add further stimulus. The recent euro rally may be hurting economic growth and the inflation outlook. If we see the ECB cut the deposit rate, we may see a major selloff for the common currency.

The EUR/USD 240- minute chart is displaying a key respect of the 50-period SMA. If downward pressure breaks below this level, we could see price target the 1.1250 zone.   If we see further weakness, the next major support level will come from the 200-day SMA which currently trades at 1.1134.

However, if price continues to rebound here, the 1.15 level will provide major resistance. Only a daily close above this level will end short-term bearish bias

The trade: Sell EUR/USD at 1.1375 with a stop loss at 1.1425 and a take profit at 1.1275.  The Risk/Reward Ratio is around 1: 2

 

Edward J. Moya is the Chief Market Strategist for edmoya.com, an educational website for foreign exchange and commodity traders. He has over 15 years of investment industry experience in forex, stocks, options and futures. At edmoya.com, Mr. Moya writes daily currency and commodity analysis and has authored numerous articles on trading using both technical and fundamental analysis for major financial publications. He is a contributor of technical and fundamental analysis in currencies and commodities to SFO, Market News International, and Forex Factory.

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