On Monday we looked at how the EURUSD recently fell victim to a trap as old as the markets. It seems Euro bulls got ahead of themselves leading up to the May 7th run-off election in France which resulted in a “sell the news” reaction.
Between the first and second round of the election, the single currency gained 270 pips against the greenback. That made it the largest two-week rally since March of 2016.
Additionally, the pair closed last week above a significant resistance level near 1.0960.
In just 48 hours following the election, Euro bulls have surrendered all of the previous week’s gains. Unless the pair closes this Friday above 1.1020, we’re looking at a weekly bearish engulfing candle following a false break of the 1.0960 handle.
On Monday we also discussed how a close below 1.0950 would likely lead to a move toward 1.0860. Monday closed 29 pips below the key level, and the pair continued to decline on Tuesday before reaching a low of 1.0862.
This area becomes the new line in the sand for the next push lower. If sellers want to extend this week’s decline, they’ll need a daily close (5 pm EST) below 1.0860.
One event that could trigger some volatility for the Euro is ECB President Mario Draghi’s speech on Wednesday at 8 am EST. He’s scheduled to speak about the impact of monetary policy at the Dutch House of Representatives in the Netherlands.
How much impact this may have on the Euro, if any, is unclear at this time.
But again, it’s going to take a close below the 1.0860 handle to open up downside targets. The first on that list is the April 20th high at 1.0775. A break there would expose the April 21st closing price of 1.0726 which would close the gap from the first round of the French election.
At this time, I see no reason to change my bearish outlook. Last week’s false break of 1.0960 coupled with this week’s (potential) bearish engulfing candle could signal the latest swing high with a near-term target of 1.0726.
As always, time will tell.
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