How Many Reasons Do We Need To Start Building EUR/USD Shorts?

Posted Friday, August 4, 2017 by
Skerdian Meta • 2 min read

I have been mentioning quite often recently that the Dollar has been falling too deep for no major reason. It´s true that Trump is a liability for the Buck, but since when have politics been straightforward anywhere in the world?     

  1. As I have also mentioned, the US economy is in the best place amongst the major economies. The FED is the only major central bank actually on a tightening path. So, fundamentally there´s no reason to sell the USD – that´s one reason to consider selling EUR/USD.
  2. Bond yield differentials don’t justify this move. The bond yield gap between the US and Europe tend to close by the currency exchange rate, which means EUR/USD should fall.
  3. The ECB and, specifically, President Draghi won´t be this calm once we thit 1.20 in EUR/USD. That´s the line in the sand for this pair and for the ECB.
  4. EUR/USD is severely overbought and a number of moving averages on the monthly chart are crowded just above here, with the 50 simple MA (yellow) and the 200 smooth MA (purple) being the closest and most important as well. The 50 SMA is providing resistance at 1.1870, if we don’t close above it, then the buyers might get cold feet and call it a day, which would be the start of a decent pullback.  

The 200 SMA has been providing support for years until it finally let go in 2014, so if the 50 SMA gets broken, then the 200 SMA should provide some solid resistance.

The monthly chart shows that the bullish run might have come to an end

The stars are aligning for a long term sell position in this forex pair, but there are still some important events coming in the coming sessions, such as the US average hourly earnings. We will post another update about it later today so make sure to stay posted!

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