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***BK EUR/USD Big Trade -- Close EUR/USD at market now 1.1125 for +80. We will lay out new orders to sell again at a higher level.
BK Big Trade – Why it is Time to Top Pick Euro
Sell 1 lot EUR/USD at market (now 1.1205)
Place Order to Sell 1 lot EUR/USD at 1.1410
It has now become clear that investors used yesterday’s post FOMC intraday rebound in the dollar as an opportunity to buy the euro at a lower level. The single currency rose for the sixth consecutive trading day to its strongest level since February. The last time we saw such continuous strength without a pause or retracement was in March 2009 and at the time, the rally lasted for 8 trading days before the EUR/USD turned sharply lower, falling 800 pips in the course of a month. We can find 3 reasons for today’s rally but before we get into them, the one thing that is NOT supporting the uptrend in the EUR/USD is fundamentals.
Most of this morning’s U.S. economic reports surprised to the upside while the latest Eurozone data highlighted ongoing weakness in the Eurozone economy. German retail sales fell -2.3% in the month of March, the steepest decline since December 2013. The unemployment rate for the Eurozone was expected to improve slightly to 11.2% but it held steady at 11.3%. The German jobless rate also remained unchanged at 6.4% as only 8k people fell off unemployment rolls compared to a -15k forecast. Moody’s also lowered Greece’s credit rating but EUR/USD traders ignored the move. Instead, these are the 3 reasons behind the euro’s mind boggling rally versus the U.S. dollar.
1. German – US Yield Spread is Moving Higher!
U.S. yields are up today but German yields moved even higher. The following chart shows how EUR/USD is being boosted by the German – U.S. 10 year yield spread, which started to turn higher right when the currency pair broke above 1.09.
2. Euro Accelerated Gains after Break Above 50-day SMA
The rise in the EUR/USD gained momentum after it broke above the 50-day SMA shown in the chart below. This was first time that the currency pair had done so since May. The move also accelerated as stops were trigged above the March high of 1.1052.
Of course positioning had a lot to do with the move as the persistent strength of the currency and the break of a key resistance level that capped gains in the pair for the past 1.5 months led to short covering.
What’s Next for EURO? Move Back Down to 1.10
So where is EUR/USD headed next? Fundamentally, the EUR/USD should be trading lower. Technically, the currency pair is also closing in on some important resistance levels. The 61.8% Fibonacci retracement of the record high and record low for EUR/USD sits right above current levels and not far from that is the 100-day SMA. We believe that these resistance levels along with the overstretched rally should lead to a near term move back down to 1.10.