The EURUSD is trading at session lows as NY traders enter for the day. The pattern is similar to yesterday. In the Asian session both yesterday and today, the price traded mainly above the 100 hour moving average (blue line in the chart below). As trading entered the London session, weakness resurfaced.

EURUSD trades between 1.1743 and 1.1876.

EURUSD trades between 1.1743 and 1.1876.

Yesterday around this time, the pair bottomed and moved back higher. Today we are taking out the lows from yesterday at 1.17854, Will the sellers be able to keep a lid on corrections in trading today? A reader commented yesterday that in the European session, the European traders focus on the weakness of the euro. When New York enters the US traders focus on the weak characteristics of the dollar.

I am not so sure that the US economy is in as much trouble as the European Union. However, in any market focus can be directed toward the good, the bad or the ugly. One thing that is slowing the decline is that the short trade in the EURUSD is a crowded trade as most are positioned for ECB QE action at their next meeting. If all are in, it may be hard to find the new sellers who overwhelm the buyers.

Technically, there is also support which is providing a cause for pause. Looking at the hourly chart, over the last 4 1/2 days the pair has been contained by the 1.1876 level on the topside and 1.1743 on the bottom side. Both levels are significant.

  • The 1.1876 level was the post 2008 crisis low from June 2010.
  • The 1.1743 level represents the level that the euro was introduced to world financial markets as an accounting currency on January 1, 1999 – replacing the ECU at a ratio of 1:1 ($1.1743). The low price reached last week got to within 10 pips of that key support level at 1.1753.Since November 2003, there have only been 10 trading days when the price closed below this level.

At some point this week, we should extend outside of this narrow trading range. I have to favor the downside (below the 100 hour MA), but there is always room for that squeeze higher. As a result, the 100 hour MA will be the line in the sand (risk defining level at 1.1820 currently) that determines the bullish and bearish bias today (and going forward for that matter). That MA has been a pretty good level demarcation line this week. Generally, when the price moved above it found traders leaning against it as support. When the price moved below, however, the bias switch back to the downside. I would expect that same action to dominate in trading today and going forward. Closer resistance will likely be against the natural level of 1.1800 now.

Is it advised to buy against the 1.1743 area? Risk can be defined and limited against that level, and the market does get used to buying low and selling high when it non trends. So you will probably not be alone. My only caveat is understand the 115 pip trading range over the last 4 1/2 days will not last forever. As a result, I do anticipate a move away – either higher or lower – outside the blue box that currently defines our range. That break should solicit more momentum in the direction of the break (on the downside 1.1639 low from 2005 is the next major target).