Published On: Mon, Feb 27th, 2017

Watch for rally to follow a short-term reversal for EURUSD



EURUSD faces some tests this week on the economic data front, in addition to the potential for President Trump to say something of significance in his Congress address on Tuesday.

On Wednesday we get the PCE inflation report out of the US (the Federal Reserve’s benchmark). With a 0.5% January number expected, the annual headline rate will hit 2%, much to the Fed’s satisfaction. We will hear what Fed Chair Janet Yellen has to say about it in a speech scheduled for Friday.

In the meantime the probability of a March 15 rate hike sits a bit under 40%.

Wednesday will also see the first estimate for German inflation in February and again the headline number could be close to 2%. But the European Central Bank seems more interested in core inflation, and in the Eurozone as a whole that number is struggling to get to 1%. Hence ECB representatives are downplaying an idea of tapering quantitative easing anytime soon.

Management and risk description

From both classical charting and Elliott Wave perspective, EURUSD offers more than one credible interpretation at this time and the next medium term trend move will be determined shortly.

In the meantime, the euro’s decline from this month’s 1.0830 peak (on February 2) is a 3-wave Elliott Wave structure so far. Any break above short-term mathematical retracement resistance and trendline resistance, at the 1.0620 level, would likely signal a short term reversal, enabling a rally onto 1.0680/1.0710, en route to key resistance at 1.0800/1.0830.


Entry: Today: EURUSD is seen as a Buy on any break above 1.0620 resistance.

Stop: just under 1.0590, initially.
Target: 50% at 1.0693 and 50% at 1.0797.
Time horizon: Allow several days at least, for both targets to be met.

EURUSD daily chart (click to expand)

 Source: ThomsonReuters 

EURUSD weekly chart (click to expand)

 Source: ThomsonReuters  

— Edited by Robert Ryan

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