Euro traders are getting tired of following the constant negotiations between Greece and its creditors. With just under two weeks left, every day that passes that no deal is reached, concerns of a Grexit grow. If we eventually see a Greece leave the euro, contagion and deflationary concerns will become a big problem for the euro zone.
While the Greek situation remains a dire one, the German economy has been strengthening and benefiting from the ECB quantitative easing program. The euro has also rallied as investors eagerly await potentially downwardly economic projections from the Federal Reserve regarding the U.S. economy. Some believe that the Fed will remain cautious and if that happens, we could see a major spike higher with EUR/USD.
My forecast is for the Fed to hike interest rates in September. If Chair Yellen lays out the plan for liftoff, we could see a major rally for the U.S. dollar.
Price action on the EUR/USD daily chart shows that price has consolidated above both the 50- and 100-day Simple Moving Averages (SMA) after respecting the 1.1380 resistance level. If the Fed does not disappoint and remains optimistic regarding the economy, we could see price action slide towards the bottom part of the recent trading range.
If we are surprised and receive a dovish Fed message, price action may advance strongly until finding resistance from both the 200-day SMA and a potential bearish butterfly pattern at around the 1.1730 area. Despite any dovish surprise, the U.S. economy is in a much better position than that of the euro zone, and any rallies should be sold into.
The trade: Sell EUR/USD 1.1285, with a stop loss at 1.1425 and take profit at 1.0865. The risk/reward ratio is 1:3
Edward J. Moya
Chief Technical Strategist
WorldWideMarkets Online Trading
