Euro Trading Strategy: Economic and Technical Points

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Euro Trading Strategy: Economic and Technical Points

09:00 AM (EST) Update

Now that the Fed buzz has faded, it’s time for Mr. Euro to get high and mighty on the forex dance floor. Not only Greece has made itself back to the news, we are expecting a series of hot market moving figures to be released on Wednesday. To top that off, China is also already creating some fear on Wall Street. Here is how you can build a strategy for the single currency.

Economic Points

Greece’s election results & Euro

We learned over the weekend that Greek Prime Minister Alex Tsipras has emerged victorious in the latest elections. However from what we’ve seen in the past few weeks on Mr. Euro’s dance moves, it looks like he has been able to move on from the Greek debt drama and focus on fundamentals and other market factors. In fact, the shared European currency drew a bit of support from improving euro zone data for quite some time but soon erased its gains during the global stock market turmoil and when ECB Governor Draghi shared that they’re willing to ease further if necessary.

But still, Mr. euro’s forex movements might show sensitivity in case we hear ultra negative news from Greece. So there indeed is trading opportunity as well as risk when it comes to Greek news.

Flash PMI Readings

Germany, France, and the entire euro region are set to release their Purchasing Managers Index (PMI) one after another on Wednesday’s London session.For new investors in the house, let me explain that the PMI takes various business indicators such as employment, inventories, output, and new orders into account and wraps ’em up in one neat figure. A reading above 50.0 indicates that the industry, whether it’s manufacturing or services, expanded during the month while a reading below 50.0 reflects industry contraction.

So we are expecting Wednesday trading to  get busy with Chinese, French  and German Flash Manufacturing PMI out at 2:45, 8 and 8:30 AM GMT respectively. Euro zone PMI numbers are scheduled for 9 AM.

While China’s PMI could create a global volatility on its own in the early hours, larger declines in European PMIs would mean that the slowdown in these industries was worse than expected. This could lead market participants to speculate that the ECB might move closer to giving the green light on further monetary policy easing. On the other hand, stronger than expected data could get Mr. Euro up and high.

ECB Governor Draghi’s Speech 

Another potential market-mover for euro pairs tomorrow is ECB head (Super) Mario Draghi’s testimony at 2:00 pm GMT. As the head of the region’s central bank, Draghi has a huge say when it comes to their monetary policy bias.  Super  Mario already dropped a bombshell on the markets earlier in the month when he said that the ECB is open to further easing if necessary. During his official statement, Draghi pointed out that Euro zone’s  economic recovery is moving at a weaker pace than initially expected, partly due to the slowdown in China and emerging nations. He even announced downgrades in growth and inflation forecasts, emphasizing that the ECB has plenty of easing tools at their disposal in case the situation worsens.

Now, tomorrow Mr. Draghi  is expected to highlight these same points, probably adding a few more remarks on the region’s disappointing CPI readings and the potential repercussions of Fed tightening on global growth. If the market participants get any remarks  that the ECB is ready to ease, they could send Mr. Euro tumbling against its forex counterparts. On the other hand, upbeat comments could keep him above support levels.

Technical Points

The EUR/USD pair continues to dance within an upward channel however after August’s Chinese market panic hike, it has not been able to break back above the 1.15 pivot level. It has broken below the key support and 23% Fibonacci level of 1.13 for the second time since Black Monday creating a Double Top chart pattern, with the neckline falling perfectly on the upper bank of the Ichimoku cloud at 1.11. As of Tuesday morning Mr. Euro is free falling towards the neckline perhaps in preparation for tomorrow’s economic releases. For now, we expect the pair to remain within the channel, being supported at 1.10. However a break below this level could open doors for even further drops with 1.08 as target.

Either way, there still is no signs of a clear trend (or trend change) so best trading strategy remains to be range trading within the channel with concrete stop loss orders in place!

Supports and Resistance levels

Support Levels Turning Point Resistance Levels
1.08 1.13 1.18
1.05 1.15 1.22

*Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.