Technical Analysis EUR/USD: 2017-05-15

ECB is not going to tighten monetary policy

On Wednesday, the head of the European Central Bank Mario Draghi announced that it is necessary to continue monetary stimulation of the EU economy. Will the euro fall?

Let us recall that at its regular meeting on April 27, 2017, the ECB maintained low rates and a monthly volume of asset purchases at the level of 60 billion. Thus, its deposit rate is still minus 0.4%, the refinancing rate is zero, and the interest rate on loans is plus 0.25%. Some investors did not exclude that the ECB would confirm the deadlines of its “quantitative easing” program conducted according to the US Federal Reserve’s example.

The current level of inflation in the Eurozone is 1.9%. It is already very close to the target level of 2% at which the economic stimulus program should have to be completed. However, Mario Draghi said that despite of its planned completion at the end of this year, the program might be continued if required. An additional negative for the euro may be the data on industrial production for March in the Eurozone. They were published on Friday, May 12, 2017 and appeared to be weaker than forecasts. Next Tuesday, on May 16, significant economic data on GDP and trade balance will be published in the EU.

EUR/USD Daily Chart

On the daily timeframe, EUR/USD: D1 is in an ascending channel. It could not overcome the 6-month high and the resistance line. Now it is trying to correct down. The further decline of euro is possible in case of the publication of weak economic data in the Eurozone or in case of the strengthening of the US dollar.

  • The Parabolic indicator is giving a bearish signal.
  • The Bollinger bands have widened, which indicates high volatility.
  • The RSI indicator is slightly above 50. It has formed a negative pergence.
  • The MACD indicator is giving bearish signals.

The bearish momentum may develop in case EUR/USD falls below the 200 – day moving average line at 1,083. This level may serve as an entry point. The initial stop-loss may be placed above the last fractal high, the 6-month high and the Parabolic signal at 1,102. After opening the pending order, we shall move the stop to the next fractal high following the Bollinger and Parabolic signals. Thus, we are changing the potential profit/loss to the breakeven point.

More risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop level at 1,102 without reaching the order at 1,083, we recommend cancelling the position: the market sustains internal changes that were not taken into account.

Summary of technical analysis:

Position: SellSell stop: below 1,083Stop loss: above 1,102

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