The technical trading plan for the EURUSD through the ECB decision

The EURUSD has had that trading type of day warned about in my earlier post. The action today- with the background from the leak – demonstrates that event risk will be high. Even with the leaks, there still plenty of unknowns (see Adams preview) that will make for a wild ride. Was today’s action a test run of what we will see tomorrow, or did it scare away many and therefore will cause a more orderly reaction tomorrow.

I would have to err on the side of the surprises with the associated volatility to go along with it. It seems like that is the modus operandi, with the SNB and now the Bank of Canada shocking the markets. At least the ECB is being a little forthright with their leak of 50 billion euros per month. What is not known and which can be shocking is the specific details:

  1. Will Germany participate?
  2. Will the ECB be the buyer of the sovereign debt and share the risk among the members?
  3. Will the ECB have each respective country buy their own bonds?
  4. What maturity of bonds will they purchase?
  5. Is there an end date and/or end amount?
  6. What will Greece do?

Then work what is priced in? It will indeed be a wild ride, but overall, the fundamentals remain more to the downside for the pair. So rallies are likely to be sold, maybe not tomorrow but going forward.

EURUSD levels to plan your trade tomorrow

EURUSD levels to plan your trade tomorrow

What about from a technical perspective? What are the charts saying?

  • The current price is trading at the 100 hour MA (blue line). The 100 hour MA is always a nice place to start/stop/use to define risk and a bias (after the fact). The market between now an 7:45 AM will trade above and below the level but after the news, I will look for the price to move away from what is a neutral technical level
  • On the topside, the following levels are all key technical levels that should have some significance to the market. They are nothing fancy. Everyone can see them/ should know them. They include:
    • 1.1639 = 2005 low
    • 1.1682 = 200 hour SMA
    • 1.1743 = The level the EURUSD was originally priced on January 1, 1999
    • 1.1876 = Post debt crisis low from 2010 (until this month
    • 1.1975-1.2000 = I consider this a gap from the weekend of Jan 2 to Jan 5. The 5 PM high on Jan 5 was 1.1975. The low on Jan 2 was 1.19999
  • On the downside,
    • 1.1539 =Low for the week
    • 1.1459 = Low for the year
    • 1.1372 is the low from November 2003 and lower trend line on the hourly chart

Between now and then the market will gyrate.

Understand that the dynamics exist for a volatile reaction on the announcement. Also be aware that it may be a series of headlines that piece together to tell the story. It will be the complete story that should dictate.

What about being oversold?

  • I cheated (t don’t use RSI and don’t advise using it) and put a 14 day RSI on my daily chart to see were the RSI stood currently. It is below 30, but it has been below 30 since January 2nd when it closed at 1.2000. Oversold can remain oversold in a trending market.
  • I also know that the commitment of trader report which last week as of the close on Tuesday (I think that is what it shows) was net short – close to record levels. Between that time and now, the SNB exit from the peg, and the price trended even lower. So there has not been that short rally, nor do we know what the net position is now anyway.
  • The price has been stepping down nicely with little threat to broken levels. The 1.1876 level was the first step to get below (see green dashed line). The price broken and stayed below. The 1.1743 another level. The price fell below and stayed below. The 1.1639 low (2005 low) was the next major level to be broken and the most recent. The price today did break that level in the wild ride today, but could not sustain the move above. This will be a level to watch after the decision and volatility is normalized tomorrow. Stay below (or fail again on a break above) and the sellers are still king

As mentioned, I don’t think the end of the trend is here for the EURUSD (i.e. rallies will be sold). However, one must always be aware of the corrections that clear out the shorts. So listen to the levels, watch the price action at first before venturing in the deep end. Remember, there will always be another trade. So trade like you know what you are doing. It starts with planning the trade. I hope this helps you and gives you the reasons.