Free Profitable Forex Newsletter
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EURUSD Shots Higher On Dovish Fed; Will The Bullish Breakout Be Confirmed?
So, it is a time when central banks around the world are sounding the dovish alarm it seems. All major central banks have turned more dovish recently and the Fed this week confirmed investors expectations for cutting interest rates. They made another shift in the dovish direction and the Fed board now expects that interest rates will be
lower by 0.50% by the end of the year.
Unfortunately, last week’s long EURUSD trade was stopped out, although it seems we were right about the direction, only a little bit too early maybe. As we said in our last 2 emails on EURUSD, the odds were favoring a weaker Dollar and the EURUSD pair indeed rebounded.
The only part missing for a stronger move higher is a more hawkish ECB, or better said - better economic growth (and even political) prospects in the EU. The dovish ECB and the dovish Fed have been pushing on strings the EURUSD pair and it has remained largely stuck as a result - roughly for the past 10 months.
If the Fed now proceeds with cutting rates (they most likely will), that alone should be enough to take EURUSD above 1.1500 at least in the coming weeks.
We are looking for EURUSD to extend the rally above 1.1350 if today’s PMI data is strong or at least within consensus expectations. EURUSD could only reverse back down in case of major disappointments in this data.
The closely watched reports are the PMIs from France, Germany and for the whole Eurozone.
The technical picture has turned bullish after the breakout of the wedge and it will be confirmed if this week closes strong with a tall green candle.
The broken resistance line of the wedge was successfully retested this week, and unless EURUSD reverses the gains tomorrow, the bullish breakout will be confirmed with a retest. That is a significant bullish signal and the target of the wedge is 500 pips higher to the 1.1800 price area.
The only obstacle in the near term does remain the band of 200-day and 200-week moving averages in the 1.1350 area. But this would be the second attempt in three weeks, and it will now be more likely that it will be broken on the second attempt.
What we said last week still holds true - EURUSD can quickly move to 1.1500 if 1.1350 is broken and that will provide good tradable opportunities.
Indeed, fundamentally, the same conclusion can be achieved. EURUSD was declining slowly in the past 10 months on a persistently hawkish Fed and a persistently decelerating European economy.
That has now changed. The Fed has turned full dovish and it only remains to be seen whether the EU economy can rebound a bit from here. That is why today’s PMI reports are very important.
Lastly, for a sustainable move higher above 1.1500 and toward 1.1800, the market will probably wait for the June Non-Farm Payrolls (to be released on July 5). If that report is weak like the last one was, it will cement a rate cut by the Fed in the same month. This, in turn, should quickly extend the broad USD decline - most likely driving EURUSD above 1.1500, and all else being equal fairly likely to 1.1800 in 2 - 3 months time from now.
- Wait for a bullish breakout of the 1.1350 area which will confirm that a move toward 1.1500 is underway. (Safer way to trade it)
- Alternatively, for an earlier entry, you can look to buy dips below 1.1300 if possible and maybe even toward 1.1250 if such an opportunity is presented.
Stop loss:
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Not too wide, look to place the stop below the entry pattern. If/when 1.1350 is broken, 1.1300 should hold as support.
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From the current perspective, the 1.1250 price zone should hold even in case of some minor disappointments in the European PMI data.
Targets:
Trade signals from the past week
Week June 10 – June 14, 2019
- June 14, 2019 – Long EURUSD from 1.1255, stop taken out at 1.1240 = -15 pips
- May 23, 2019 – Long EURCHF from 1.1150, closed on June 19 at 1.1180 to protect profits = +30 pips profit
TOTAL: +15 pips in the past week
TOTAL: +1130 pips profit since October 1, 2018
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Any opinions, news, research,
predictions, analyses, prices or other information contained in this newsletter is provided as general market commentary and does not constitute investment advice. FX Trading Revolution will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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